FSA Newsletter October 2006
The first press conference by Minister Yamamoto (September 26) Minister Yamamoto took over the post from former Minister Yosano (September 27)
The first press conference by Minister Yamamoto (September 26) Minister Yamamoto took over the post from former Minister Yosano (September 27)


Table of Contents


The Status of Non Performing Loans as of end-March, 2006

On August 8, 2006 the Financial Services Agency (FSA) released to the public the status of non performing loans as it stood as of the end of March 2006.
A brief explanation of the status of non performing loans as of the end of March 2006 is given as follows:

The balance of non performing loans (NPLs) of all banks nationwide (on the basis of loans subject to disclosure under the Financial Reconstruction Law) totaled 13.4 trillion yen as of March 31, 2006, a 4.6 trillion yen decrease from 17.9 trillion yen recorded in March 31, 2005.
The respective NPL ratios of major banks, regional banks and all banks nationwide were lower than in March 31, 2005, each of which was a record low since data on loans subject to disclosure under the Financial Reconstruction Law became available to the public in March 31, 1999.

In particular, the NPL ratio of major banks decreased by 1.1 percentage points to 1.8%, from 2.9% as at March 31, 2005 when the objective of halving the NPL ratio under the ''Program for Financial Revival'' (October 2002) was successfully achieved.
The NPL ratio of regional banks has also been steadily decreasing as a whole, as regional banks are making steady progress in their efforts to enhance region-based banking relationships.
The FSA will continue taking all possible steps in the supervision of financial institutions in the future, lest a NPL problem should reemerge and harm the Japanese economy.
*  For further information, please visit the FSA's website and go to either ''The Status of Non Performing Loans as of end-March 2006 (August 8, 2006)'' under ''Press Releases.'', or ''End - March, 2006 (released on August 8, 2006)'' under ''Status of Non-Performing Loans''.

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The Requests for FY2007 Tax Revision

On August 31, the Financial Services Agency (FSA) submitted the ''Requests for FY2007 Tax Revision'' to the Ministry of Finance and the Ministry of Internal Affairs and Communications. This year, we have requested tax measures required to further invigorate the financial system for the purpose of helping realize:
   1. A wealthy, strong and attractive Japanese economy; and
   2. A safe, flexible and diverse society.

1. From the perspective of realizing a wealthy, strong and attractive Japanese economy, our requests included the following:
(1)  For the purpose of accelerating and establishing the shift ''from savings to investment'' that has started to gain momentum:
(a)  Sustain the preferential tax rate of 10% with respect to capital gains from listed stocks, etc.; and
(b)  Take appropriate tax reduction measures with respect to dividend income.
(2)  Allow offsetting between capital losses and dividend income from listed stocks, etc. as an effort to standardize taxes imposed on financial instruments.
(3)  For the purpose of preventing the recurrence of the non-performing loans (NPL) problem at financial institutions and tackling the vulnerability of deferred tax assets as an asset class,
(a)  Expand the scope of tax-free write-offs and provisions for bad debt; and
(b)  Lift the freeze on the carry-back refund system for losses and extend the eligible period, etc.
(4)  Broadly speaking, adopt the approach taken by the existing tax system for trusts and give due consideration to facilitating trust transactions with respect to tax measures associated with the revision of the Trust Law.

2. For the purpose of realizing a safe, flexible and diverse society,
our requests included the following.
(1)  Establish a new general-purpose life insurance premium deduction scheme that not only meets diverse needs but is also simple and easy to understand, to assist self-supporting efforts in bereaved family/old-age/medical/nursing security.
(2)  Enhance the system of catastrophe reserves for fire insurance, etc. to deal with risks in everyday lives, such as natural disasters.

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The Summary of FY2007 Budgetary Requests

1. Introduction
The diversification of financial products and services is giving rise to the need to enhance market surveillance functions and promote consumer protection measures for the purpose of protecting users of financial services and enabling them to perform transactions safely and with a sense of security. Considering that Japan Post is due to be privatized in October 2007, it is also important to respond to the postal services privatization appropriately. Furthermore, it is necessary to develop an information system to improve user convenience and operational efficiency. The Financial Services Agency (FSA) has made organizational, staffing and budgetary requests required to take various measures, etc. to tackle these issues.

2. Details of Organizational and Staffing Requests
In making organizational and staffing requests for FY2007, the FSA has set three priority areas for framework development, namely, ''enhancement of market surveillance functions'', ''promotion of consumer protection measures'' and ''response to postal services privatization''.

(1) Enhancement of Market Surveillance Functions
As the scope of disclosure inspections and civil penalties investigation was expanded and funds became a new target of supervision in conjunction with the enforcement of the Financial Instruments and Exchange Law, we will substantially enhance our framework to watch and monitor securities markets required to properly implement the Financial Instruments and Exchange Law. We will also enhance our framework for planning and legislation systems for constantly-evolving markets and corporate disclosure systems, and enhance our inspection and supervision frameworks targeted at auditing firms and Certified Public Accountants (CPAs).

(2) Promotion of Consumer Protection Measures, etc.
We will develop inspection and supervision frameworks targeted at loan companies, banks, insurance companies, consultation and PR frameworks for financial services users, and frameworks for planning and legislation systems to promote consumer protection measures.

(3) Response to Postal Services Privatization
Considering that the Postal Savings Bank and the Postal Life Insurance Company will launch banking operations and insurance operations, respectively, in October 2007 under the Japan Post Privatization Law, we will develop inspection and supervision frameworks to further improve the efficiency and convenience of the financial system in Japan as a whole by facilitating the smooth privatization of postal services.

For the purpose of developing these frameworks, we have requested that our staff be increased by 195 persons in total, consisting of 34 additional staff members requested in the Planning and Coordination Bureau, 27 in the Inspection Bureau, 36 in the Supervisory Bureau, 86 in the Securities and Exchange Surveillance Commission (SESC) and 12 on the Certified Public Accountants and Auditing Oversight Board (CPAAOB).

(Reference: Staffing Request for FY2007)
  (Note) In addition, the Financial Intelligence Unit (FIU; an organization engaged in sorting and analyzing information on transactions suspected of being related to crime and providing such information to the law enforcement authorities) is to be transferred to the National Police Agency in conjunction with legislation for enhancing measures to fight money laundering and terrorist financing.

3. Details of Budgetary Requests
In our budgeting requests for FY2007, we thoroughly reviewed all over our expenditure and asked for a total of approximately 24.9 billion yen (up 18.1% year-on-year), taking into account: (1) funds required to increase our staff (by 195 persons) to enhance market surveillance functions and promote consumer protection measures; (2) funds required to develop an information system based on operational and system optimization plans aimed at improving user convenience and operational efficiency; and (3) funds required to conduct inspections and surveillance timely and enhance collaborative efforts with overseas authorities.
It should be noted that we have requested 48.15 trillion yen for government guarantees earmarked for the Deposit Insurance Corporation, based on the view that such budgeting will serve as continued assurance of stability for the financial system.

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