PRESS RELEASE

February 23, 1999
Financial Supervisory Agency


Public Comments Received on the "Interim Report" of the Working Group on Financial Inspection Manuals


The Financial Supervisory Agency published the "Interim Report" of the Working Group on Financial Inspection Manuals on December 22 of last year, at which time it sought public comments from any interested parties. The deadline for comment submissions was February 1 of this year, and over six hundred valuable comments were received from forty-seven sources.*

We will take account of these comments as the manuals are fleshed out, and hope to have the Financial Inspection Manuals finalized by the end of March.

The attachment sets out the guidelines for the review of the draft manuals.

* The public comments and their summary are available in Japanese.
For further information contact:

Financial Supervisory Agency 03-3506-6000

Evaluation Division, Inspection Department

Mr. Kurosawa (ex. 3269)
Mr. Sekiguchi (ex. 3270)
Mr. Kondo (ex. 3275)

Attachment

February 23, 1999
Inspection Department, Financial Supervisory Agency


Guidelines for the Review of the Draft Financial Inspection Manuals


1. Perspectives for the review

(1) Major items to be considered
  • Consideration of the need to further articulate the basic nature of the Financial Inspection Manuals

    For example: Consider the comment that the Financial Inspection Manuals would be legally binding on financial institutions (clarify the manualsf nature as a non-binding handbook for use by inspectors and their relationship with administrative measures that might be taken as a result of inspections).
  • Further consideration on how best to assure the effectiveness of risk management systems (including the role of the board of directors), from the perspective of financial supervision.

    For example: Consider the comment that allowances should be made for delegation of responsibility for risk management etc. to sub-committees under the board of directors.
  • Consideration of the need to take account of the issue of a credit contraction, since there have been worries expressed that the application of the Financial Inspection Manuals might lead to a contraction of credit, including lending to smaller businesses.

  • Consideration of the need for differentiation in the contents of check points according to the size and nature of the financial institution under inspection.

  • Consideration of the merits of individual arguments made in other comments.
(2) Basic considerations in the review process

The review should assume that the nature of the Financial Inspection Manuals is that of a handbook for inspectors, and should take account of the following considerations.

  • Recovery of domestic and foreign confidence in the Japanese financial system

    Japan must establish financial administration and financial institution management that takes account of international perspectives and is also acceptable to depositors and taxpayers, in order to stabilize and revitalize the Japanese financial system, and to restore the domestic and foreign confidence in Japanese financial institutions. The Financial Inspection Manuals are expected to serve this end, through an enhancement of the inspection and supervisory regime.
  • Establishment of financial institution management based on the principle of self-accountability

    Financial institutions are private companies. The role of financial authorities is to use inspections to encourage financial institutions to engage in appropriate internal management based on the principle of that the financial institution itself is ultimately accountable for its actions.
  • Assurance of smooth supplies of funding and appropriate risk management

    The role of financial institutions is to engage in necessary risk taking while appropriately managing their risks. Financial authorities should encourage through inspections the smooth supply of funding to borrowers engaged in sound business activities, while also ensuring the soundness of financial-institution operations.
  • Establishment of transparent, rule-based inspection and administration

    Financial authorities should, through the publication of the Financial Inspection Manuals, eliminate discretionary measures wherever possible, seeking instead to establish fair and transparent inspection and administrative regimes based on clearly articulated rules.
2. Future schedule

The Working Group on Financial Inspection Manuals will be reconvened to hear opinions from interested parties and will engage in working-level considerations based on the above-mentioned perspectives. The Group is expected to reconvene at the end of February and meet once or twice a week thereafter, with a goal of completing its work by the end of March.

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