Minutes of the 242nd Policy Board Meeting of the DICJ

Date of resolution: 10:30 a.m. to 11:30 a.m., March 24, 2014 (Monday)

Resolutions

1. Changes in insurance premium rates

The deposit insurance premium rates will be revised as follows:

(1) The deposit insurance premium rates applicable from April 1, 2014, will be as follows:
 Rate for general deposits, etc.: 0.081%
 Rate for deposits for payment and settlement purposes: 0.108%
(2) Based on the fact that a situation “where it is anticipated that a sharp decline in prices in domestic and international financial markets or other types of rapid deterioration of financial markets will adversely affect the financial position of the DICJ” did not arise during FY2013, if during FY2014 there is no (a) insurance contingency (Article 49, paragraph (2), items (ⅰ) and (ⅱ) of the Deposit Insurance Act); (b) order for a financial administrator to manage the business and properties of a failed financial institution (Article 74, paragraph (1) or (2) of said Act); or (c) decision by the Prime Minister to take measures stipulated in Article 102, paragraph (1), items (ⅱ) or (ⅲ) of said Act, the difference between the premiums calculated using the rates specified in (1) above and the premiums calculated using the rates below will be calculated and refunds equivalent in amount to the difference will be provided with no interest added without delay at the end of the relevant fiscal year or later subject to approval from the Prime Minister and the Minister of Finance despite (1) above:
  Rate for general deposits, etc.: 0.068%
  Rate for deposits for payment and settlement purposes: 0.090%

As for the background to the changes in insurance premium rates, at a Policy Board meeting in March 2012, discussion was held on the framework for setting deposit insurance premium rates for the following three years (FY2012 to FY2014) and rates in the medium to long term. Based on this framework, it was determined that while the effective premium rate of 0.084% would be maintained in FY2012 and 2013, the DICJ would refund an amount of funds equivalent to 0.014% unless a failure of a financial institution participating in the deposit insurance system occurred during the relevant fiscal year. This framework also requires the following with regard to the setting of deposit insurance premium rates in the medium to long term: “Liability reserves of the DICJ General Account will basically be set aside for approximately ten years from FY2012 to such a level that the deficit experienced by the DICJ in the past will not occur again. The principles for setting premium rates will be specifically discussed while taking into consideration the status of the reserves and various domestic and international factors.”

Below, the various factors that should be taken into consideration when determining the deposit insurance premium rates in fiscal 2014, the third year under this framework, will be examined.

As for its finances, the DICJ continued to be in a state of deficit with regard to liability reserves after the deficit amount peaked at 4 trillion yen in FY2002, before returning to a state of surplus in FY2010. If a failure of financial institution does not occur in FY2013, making it necessary to refund deposit insurance premiums, liability reserves are expected to total approximately 1.7 trillion yen at the end of the fiscal year. When we look at the economic conditions and developments in the financial market as well as the condition of the financial system in FY2013, we may conclude that a situation “where it is anticipated that a sharp decline in prices in domestic and international financial markets or other types of rapid deterioration of financial markets will adversely affect the financial position of the DICJ” did not arise during FY2013.

As for the situations in Japan and abroad, while Japan’s financial system remains stable, it is still necessary to keep a careful watch on how the European debt problem will develop although concerns over it are receding. Abroad, efforts to expand funds for deposit insurance systems are continuing, not only in the United States but also in Europe, Asia and other regions, in order to ensure the stability of the financial system and protect depositors.

In light of these circumstances and if the following points are taken into consideration, with regard to the deposit insurance premium rates in FY2014, it is deemed to be appropriate to maintain a pace of liability reserve buildup similar to the pace in FY2012 and 2013 from the perspective of keeping the deposit insurance system robust as the core of the financial system and thereby securing domestic and foreign confidence in Japan’s financial system: (ⅰ) a framework for the following three years (FY2012 to FY2014) was established when the deposit insurance premium rates in FY2012 were determined; (ⅱ) during discussions on how the deposit insurance premium rates should be set in the medium to long term, a consensus has been formed that liability reserves should continue to be built up in FY2015 and beyond; and (ⅲ) continuous efforts to expand funds for deposit insurance systems are under way in other countries.

Therefore, it was determined that (1) the proposed effective deposit insurance premium rate in FY2014 will be 0.084% and (2) unless a failure of a financial institution participating in the deposit insurance system occurs during FY2014, the DICJ will refund an amount of funds equivalent to 0.014% without any delay at the end of the fiscal year or later while it will provide no refund if such a failure occurs.

Regarding the difference in premium rates between deposits for payment and settlement purposes and general deposits, etc., it was determined that the principle of ensuring an equal premium burden for each yen of insured deposits will be maintained. Consequently, based on the trend of eligible deposits, etc., the premium rates for the deposits (for payment and settlement purposes and general deposits, etc.) applicable in FY2014 were calculated.

Regarding how deposit insurance premium rates should be set in the medium to long term, namely, in fiscal 2015 and beyond ― although this is not an agenda item for this meeting ― the DICJ’s policy is to establish a forum of discussion where relevant parties can adequately express opinions after the start of FY2014 based on the concept indicated in the abovementioned framework.

  • The head of the department in charge provided the following explanations:
  • Regarding “Resolution (proposal) 1.,” deliberations were conducted after questions and opinions were solicited from the Policy Board members, and this matter was resolved as proposed.

2. Budget and funding plan for FY2014

  • The head of the department in charge provided explanations concerning the general budget provisions, which prescribe such matters as the total amount of revenue and expense budget for FY2014, acts to assume debts, the flexibility clause and, the upper limit on borrowings, as well as the revenue and expense budget and funding plan for each account and the financial condition of each account at the end of fiscal year after the execution of the budget and funding plan.

(Unit: ¥ billion)

Account Total amount of revenue and expense budget Forecast of financial condition
Revenue budget Expense budget Profit in FY2014
(“-” indicates loss)/ provision for  liability reserves
Liability reserve surplus at the end of FY2014(“-” indicates deficit)
General Account 1,094.3 315.6 769.5 2,581.9
Crisis Management Account 1.8 270.6 0.6 330.9
Financial Revitalization Account 1,365.5 1,362.6 -7.2 -255.4
Early Strengthening Account 296.2 290.3 6.9 1,596.0
Financial Functions Strengthening Account 24,012.7 24,108.4 9.7 24.9
Damage Recovery Distribution Account 0.9 0.9 -0.01446 -0.07830
Regional Economy Vitalization Corporation Account 0.0003 0.00671 -0.00641 -0.02742
Revitalizing Earthquake-Affected Business Account 0.0003 0.00097 -0.00067 -0.00179
  • Regarding “Resolution (proposal) 2.,” deliberations were conducted after questions and opinions were solicited from the Policy Board members, and this matter was resolved as proposed.

3. Amendments to the Articles of Incorporation of the DICJ

  • The head of the department in charge provided the following explanation:
    The upper limit on the amount of borrowings and issuance of DICJ bonds in the Crisis Management Account will be raised from 17 trillion yen to 35 trillion yen.
  • Regarding “Resolution (proposal) 3.,” deliberations were conducted after questions and opinions were solicited from the Policy Board members, and this matter was resolved as proposed.

4. Decision on the purchase of specified difficult recovery claims from financial institutions

  • The head of the department in charge provided the following explanations:
    This resolution concerns the system under which the DICJ purchases specified difficult recovery claims held by financial institutions. The DICJ will purchase assets for which financial institutions have recently applied for purchase by the DICJ.
    The Committee for Screening Purchase of Specified Difficult Recovery Claims, a third-party organization, conducted deliberations as to whether the purchase of the relevant specified difficult recovery claims is appropriate as well as their prices and expressed to the DICJ Governor its opinion to the effect that it is appropriate.
  • Regarding “Resolution (proposal) 4.,” deliberations were conducted after questions and opinions were solicited from the Policy Board members, and this matter was resolved as proposed.

5. The terms of the entrustment of the purchase of specified difficult recovery claims to the Resolution and Collection Corporation

  • The head of the department in charge provided the following explanations:
    This resolution determines the terms of the entrustment of the purchase of specified difficult recovery claims to the Resolution and Collection Corporation explained in 4. above. According to the resolution, the purchase price will be that presented by the DICJ and any profit that may arise in relation to the purchased asset will be paid to the DICJ. The DICJ will compensate for any loss that may arise.
  • Regarding “Resolution (proposal) 5.,” deliberations were conducted after questions and opinions were solicited from the Policy Board members, and this matter was resolved as proposed.

Reports

1. Medium-Term Goals (FY2014-2016) and Operational Policy (FY2014)

  • The head of the department in charge noted that “the DICJ prepares and announces the Medium-Term Goals, which covers three years, and the single-year Operational Policy, which prescribes concrete measures to achieve the goals, from the perspective of appropriately conducting operations,” and reported on the main points of the new goals and policy.

2. Amendments to the Agreement on the Procedural Regulations

  • The head of the department in charge reported that necessary amendments will be made to the Agreement on the Procedural Regulations in line with the reorganization of the DICJ that took effect on April 1, 2014.

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