Statement by the Governor concerning the Yamaichi Securities Co.
June 2, 1999
Bank of Japan
1. We have today been informed by Yamaichi Securities Co. that it has been declared bankrupt by the Tokyo District Court. It is truly regrettable for the Bank of Japan that Yamaichi has come to face such a situation.
2. Since the decision by Yamaichi to close down its business and dissolve itself which was announced on November 24, 1997, the Bank of Japan has been providing necessary liquidity pursuant to Article 38 of the Bank of Japan Law (Article 25 of the same Law prior to amendment) in cooperation with the main banks of the firm, so that it may return customer assets, orderly settle outstanding transactions, and withdraw from overseas activities.
3. At the time when Yamaichi decided to close down its business and dissolve itself, the environment surrounding Japan's financial system had become increasingly harsh due to instability in the domestic stock markets as well as Asian currency markets, and also due to the successive failure of Japanese financial institutions. In addition, the economic recovery had slowed down and business sentiment had become cautious. Under such conditions, there was a serious concern that the inability of Yamaichi, which was conducting a wide range of business in domestic as well as overseas markets and serving a large number of customers, to fulfill its contractual obligations could cause a major disruption in both domestic and overseas markets, thus undermining the overall financial system stability.
4. In view of such considerations, the Bank of Japan considered it extremely important that, during the process of closing down Yamaichi, its outstanding contracts should be smoothly fulfilled, so that deterioration of market confidence in Japan's banking and securities industries and disturbance in domestic as well as overseas markets might be avoided, thereby ensuring the stability of the financial system as a whole. Against this background, as an exceptional and temporary measure, the Bank thus decided to provide necessary liquidity to Yamaichi. To date, the Bank of Japan has been informed by Yamaichi that it has basically completed settlement of its regular business transactions, and therefore the Bank is of the view that the purpose of the liquidity provision has been sufficiently attained.
5. Now that Yamaichi has been declared bankrupt, the Bank of Japan will endeavor to collect the funds it provided to Yamaichi by exercising its rights in the course of bankruptcy procedures.
6. With regard to the extension of credit to Yamaichi by the Bank of Japan, the Minister of Finance declared in his statement dated November 24, 1997, that the Government intended to take appropriate measures to strengthen the framework to cope with situation arising in the course of business failures of securities companies, including in the ultimate resolution of the particular case of Yamaichi, and that these measures would include the provision of legal basis for the Compensation Fund for Deposited Securities, enlargement of its financial resources and strengthening of its functions. Therefore, the Bank of Japan believes that there is no concern about the eventual collectibility of the funds. The Bank of Japan strongly hopes that final measures for the resolution of Yamaichi will be taken by the Government in an adequate manner in line with the statement of the Minister of Finance.