Chairman Comments on Financial System Council Report

The Second Subcommittee of the Financial System Council held on July 28 finalized the report, "Desirable ways for providing financial institutions with public funds" and drafted the interim report, "How to regulate capital adequacy ratios." These were both released on the same day. In correlation with this, JBA released the following comments of the Chairman.

1. Comments on the report "Desirable ways for providing financial institutions with public funds"
The report has indicated the ideal form of the future public funding system. Our position as bankers is that public funds should only be injected after the bank in question has exerted every effort to help itself and there is no other route available. The injection must also not be for rescuing on individual bank but for stabilizing and strengthening the financial system. Various views and opinions, including these, are presented in the report. It is essential that ample and prudent be held on actual implementation of these.

In particular, forcing other financial institutions to bear losses incurred from public fund injections will jeopardize the market principle and weaken financial institutions as a whole. Thus prudence is obviously necessary in approaching this matter.

2. Comments on the interim report "How to regulate capital adequacy ratios"
The report describes both pro and con positions for placing limitations on deferred tax assets to be included in capital. Tax effect accounting is a globally accepted standard, which was invented to reconcile a gap between corporate accounting and tax accounting. Banks are striving to dispose of bad loans according to the Program for Financial Revival within this given scheme. A change of principal rules, such as the regulation on capital ratios, should be avoided during a period of concentrated disposal of bad loans. We, banks, will continue to seek understanding of concerned parties on these points.