“DI Cross Border Issues, Looking from Japan”

“DI Cross Border Issues, Looking from Japan” Mutsuo Hatano Deputy Governor Deposit Insurance Corporation of Japan International financial Instability CROSS-BORDER BANKING & NATIONAL REGULATION October 5-6, 2006

Japanese DIS Designand the “Cross Border” issues <Assumption> “In its nature of design, the Japanese DIS is relatively “closed” and less exposed system to the cross border issues” International financial Instability CROSS-BORDER BANKING & NATIONAL REGULATION October 5-6, 2006

Japanese DIS Designand the “Cross Border” issues <Assumption> “In its nature of design, the Japanese DIS is relatively “closed” and less exposed system to the cross border issues” <Due to> No coverage for deposits accepted by foreign banks’ branches in Japan <Due to> No coverage for the deposit placed in foreign branches of Japanese banks International financial Instability CROSS-BORDER BANKING & NATIONAL REGULATION October 5-6, 2006

Japanese DIS Designand the “Cross Border” issues <Assumption> “In its nature of design, the Japanese DIS is relatively “closed” and less exposed system to the cross border issues” These nature of design have been made up due to the historical background of financial system and banking sector in Japan International financial Instability CROSS-BORDER BANKING & NATIONAL REGULATION October 5-6, 2006

Japanese DIS Designand the “Cross Border” issues <Assumption> “In its nature of design, the Japanese DIS is relatively “closed” and less exposed system to the cross border issues” However… International financial Instability CROSS-BORDER BANKING & NATIONAL REGULATION October 5-6, 2006

DICJ Pursuits for Liability to Recover Assets The collection and recovery of asset is one of the most important duties imposed to the DICJ. And, The RCC, which is 100% subsidiary of the DICJ, purchases and recovers bad assets in a cooperative manner with the DICJ. And Sometimes, DICJ faces difficulty to deal with cross border issues in this regards International financial Instability CROSS-BORDER BANKING & NATIONAL REGULATION October 5-6, 2006

Case We Face Bank A Bank B Bank C Loan Loan Loan Company A (Suspect) Invested \ 4.0 billion in total (1990) Hotel Hotel Hotel Hotel Hotel Hotel International financial Instability CROSS-BORDER BANKING & NATIONAL REGULATION October 5-6, 2006

Case We Face Affiliate Company a Company A (Suspect) Affiliate Company b Affiliate Company c Affiliate Company d Hotel Hotel Hotel Hotel Hotel Hotel International financial Instability CROSS-BORDER BANKING & NATIONAL REGULATION October 5-6, 2006

Case We Face Affiliate Company a Hotel Hotel Company A (Suspect) Affiliate Company b Hotel Sales of the Hotels Affiliate Company c Hotel Affiliate Company d Hotel Hotel International financial Instability CROSS-BORDER BANKING & NATIONAL REGULATION October 5-6, 2006

Case We Face DICJ/RCC (Creditor) Request for the write-offs 2.4 billion yen With the final payment of 130 million yen Company A (Debtor) International financial Instability CROSS-BORDER BANKING & NATIONAL REGULATION October 5-6, 2006

Case We Face DICJ/RCC Company A Invested \12.0 bill And Loaned \300 mil Company A (Suspected Debtor) Company B In Korea International financial Instability CROSS-BORDER BANKING & NATIONAL REGULATION October 5-6, 2006

Case We Face Company B In Korea Company B Owned by The Debtor: \720 mil His Son: \480 mil His Wife: \20 mil 77% of Total Capital International financial Instability CROSS-BORDER BANKING & NATIONAL REGULATION October 5-6, 2006

Justice/Fairness/Social Cost <Our Direction> Solving the problem concerning the cross border issues in this regard, should be crucial to secure the social justice and fairness and to minimize the social cost International financial Instability CROSS-BORDER BANKING & NATIONAL REGULATION October 5-6, 2006

Solution -Bilateral agreements Bilateral agreements may be one of the options Documentation of agreement such as MOU should work But It needs mutual understandings and any adjustments regarding both legal system So It might be time and cost consuming and have a problem in its timeliness International financial Instability CROSS-BORDER BANKING & NATIONAL REGULATION October 5-6, 2006

Solution –International Norms International Norms set by a multilateral organization may solve the problems pointed out We have examples such as 　・Multilateral MOU ”Concerning Consultation and Cooperation and the Exchange of Information” IOSCO or International Organization of Securities Commissions ・“Forty Recommendations” and ”(Nine) Special Recommendations on Terrorist Financing” FATF (Financial Action Task Force on Monetary Laundering). International financial Instability CROSS-BORDER BANKING & NATIONAL REGULATION October 5-6, 2006

Where to from Here Deposit Insurers are directing for international cooperation in the area of the cross border issues from here And I hope International financial Instability CROSS-BORDER BANKING & NATIONAL REGULATION October 5-6, 2006

Where to from Here Deposit Insurers are directing for international cooperation in the area of the cross border issues from here And I hope IADI could be our vehicle International financial Instability CROSS-BORDER BANKING & NATIONAL REGULATION October 5-6, 2006

Deposit Insurance Corporation of Japan Thank you

“DI Cross Border Issues, Looking from Japan”