30 January 2009

FSA Japan Sato: Putting the current financial crisis in perspective

The current situation in the U.S. and the U.K. rather has some similarities to Japan in the 1990s, Sato said and outlined the short and medium term measures taken in Japan, which also includes a framework for regulation on CRAs.

Japan’s current financial situation differs somewhat from what we faced in the 1990s, Takafumi Sato, Commissioner of the FSA Japan said. On the contrary, the current situation in the U.S. and the U.K. rather has some similarities to Japan in the 1990s in that the root causes of the crisis is endogenous in their markets. Most of the measures taken by regulators in the U.S. and Europe seem to come under one or more categories of measures we took in the 1990s and the early 2000s, he said.

 

However, it could therefore take a considerable amount of time until market confidence in the financial system is fully restored, Sato warned. Substantial de-leveraging in the global financial system is unavoidable and necessary, following the excessive risk-taking in the credit boom and the accommodative financial environment, he said. At the same time, there is a clear need to maintain financial intermediary functions, particularly financing to the corporate sector, in view of the current severe macroeconomic conditions.

 

Outlining the short and long term measures taken in Japan, Sato underlined that the FSA took action to make sure that the underlying assets of securitized products are traceable. We have clarified and enhanced the checkpoints for supervision of financial firms in the area of their risk management and disclosure with respect to their exposure to the securitization market, he said.

 

With regard to Credit Rating Agencies, he said that the introduction of a framework for regulation is currently under consideration to prevent conflicts of interest within CRAs and to enhance disclosures. “The FSA is considering introduction of new regulation from the same standpoint, bearing in mind the importance of introducing internationally consistent regulation and cooperating with our fellow regulators abroad in supervising global CRAs”, he said.

 

Full speech

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