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

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

Deposit Insurance Corporation of Japan International financial Instability CROSS-BORDER BANKING & NATIONAL REGULATION October 5-6, 2006 Japanese DIS Design and the “Cross Border” issues “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

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

Deposit Insurance Corporation of Japan 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

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

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

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

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

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

Deposit Insurance Corporation of Japan 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

Deposit Insurance Corporation of Japan International financial Instability CROSS-BORDER BANKING & NATIONAL REGULATION October 5-6, 2006 Justice/Fairness/Social Cost 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

Deposit Insurance Corporation of Japan 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

Deposit Insurance Corporation of Japan 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).

Deposit Insurance Corporation of Japan 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

Deposit Insurance Corporation of Japan 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

Deposit Insurance Corporation of Japan Thank you