18 June 2009

FSA Sato - Regulators must avoid impeding the vigor of the financial sector

Japan’s financial system does have considerable risks and many banks posted final losses at their annual financial results, Sato said. However, he repeatedly warned against too hasty implementation of medium-term measures and excessive regulation.

Japan’s financial system does have considerable risks stemming from rising credit costs caused by the weakening of the real economy, and the valuation losses and impairment on shares held by financial firms, particularly banks, Takafumi Sato, Commissioner, of the Japanese Financial Services Agency said. Against this background, many of Japanese banks posted final losses at their annual financial results as of end-March 2009.

 

Sato disagreed with arguments calling for further regulation to restrict banks’ shareholdings. “Shareholding by a bank is currently regulated to not exceed the value of its Tier 1 capital”, Sato said. “At this point in time, we do not think it is necessary to further tighten these restrictions by outright regulation”, he added.

 

The FSA is advancing medium-term reforms to strengthen financial regulation in parallel to the global reform agendas as currently undertaken by the FSB (FSF), the G20 and other institutions.

 

Recent developments in Japan include the strengthening of the disclosure requirements for financial firms with respect to their exposure to the securitization market. Also, legislative proposals to introduce a legal framework for regulating credit rating agencies are on the table - consistent with the developments in the United States and Europe.

 

Finally, supervisory colleges have been established for each of these firms. Japan FSA has established the colleges for Japan’s three megabanks and Nomura and is also member of the colleges for several foreign firms with significant influence over Japan’s financial markets.

 

However, Sato repeatedly warned that “too hasty implementation of medium-term measures could rather exacerbate the current situation and make crisis management even more difficult”.

 

Given the characteristics of the current crises, “achieving internationally consistent regulatory frameworks and closer co-operation among regulators have become crucial as financial transactions take on an increasingly cross-border character”, Sato underlined.

 

However, “regulators and the financial services industry should recognize that the role of the financial sector in supporting the real economy is indispensable and remains unchanged”, Sato warned. “Regulators also must avoid impeding the vigour of the financial sector and innovations in financial markets by excessive regulation”.

 

Full Speech

© FSA Japan