U.S. Department of the Treasury

(Archived Content)

FROM THE OFFICE OF PUBLIC AFFAIRS

The U.S. Department of the Treasury and the Japanese Ministry of Finance, as co-chairs, today concluded a round of discussions reviewing implementation of measures under the 1995 financial services agreement and progress in financial liberalization, regulation and reform. The meetings brought together officials from a range of agencies on both sides, and provided an opportunity to discuss recent financial policy and supervisory developments in addition to the measures under the agreement.

Both sides agreed that implementation of the 1995 agreement Measures by the Government of the United States and the Government of Japan Regarding Financial Services has been highly satisfactory. Liberalization measures implemented under the agreement have substantially improved commercial opportunities for foreign financial services providers in the U.S. and Japan.

U.S. and Japanese representatives exchanged views on recent developments in their respective financial markets. On the U.S. side, representatives explained recent changes related to passage of the Gramm-Leach-Bliley Act on financial modernization, developments related to the Community Reinvestment Act, and changes to regulations in the securities market. The Japanese representatives stressed that the U.S. supervisory authorities should ensure transparency in the regulation and procedures for financial institutions to establish Financial Holding Companies (FHCs) and the so-called Section 20 subsidiaries, in order to maintain fair and non-discriminatory treatment to foreign financial institutions. The Japanese side explained the Big Bang financial liberalization initiatives and recent changes in the financial laws. The U.S. side recognized the progress that has been made, and looked forward to the rapid introduction of defined contribution pensions and of custodial arrangements that would facilitate the holding of Japanese government bonds by global investors.

The U.S. and Japanese representatives discussed the regulatory challenges that each would face as a result of financial reform and innovation. The U.S. representatives welcomed the Japanese authorities' intention to make active use of the No-Action letter system now in operation, and encouraged the Japanese authorities to bring the new arrangements for providing global risk management and the provision of other shared services into full operation as soon as possible. The U.S. stressed the importance of openness and transparency in the regulatory process by financial authorities and self-regulatory organizations. The Japanese side stressed the importance of consistency in regulation and supervision between states and federal governments and emphasized the importance of overall openness in regulation and supervision. The Japanese representatives urged the US to promptly finalize the measures related to abbreviated exams for Japanese securities representatives. Japan also emphasized the importance of fairness and nondiscrimination regarding the regulatory use of rating companies.

The U.S. representatives noted the changes underway in Japan's financial system. They emphasized the importance of follow-on measures to move from stabilization to full recovery such as early actions to ameliorate weak financial institutions, flexible techniques to deal with failed financial institutions, continued strengthening of disclosure, aggressive disposal of bad loans, and the return of underlying assets to the market. The Japanese side pointed out the importance of the U.S. authorities' vigilance regarding the soundness of U.S. financial institutions' lending in the continued economic expansion in the United States.

Besides these discussions, the U.S. raised the issue of the future role of the Postal Financial Institutions in an increasingly open and competitive financial system, stressing the need for careful attention given their size and nature. The U.S. also expressed the view that consistent standards of regulation and supervision should apply in principle to all financial institutions. The Ministry of Finance stated that it would convey the U.S. views to the Ministry of Posts and Telecommunications.

Deputy Assistant Secretary Mark Sobel led the U.S. delegation and Senior Deputy Director General Tadashi Iwashita led the Japanese delegation.