10 October 2001, 09:57  BoJ, FSA should aim to inject public funds into major banks - LDP's Ohara

TOKYO (AFX-ASIA) - Ichizo Ohara, a senior member of the Liberal Democratic Party, said the Bank of Japan and the Financial Services Agency should cooperate to force through injections of public money into major banks. He said the funds were needed to ensure the disposal within two years of the 12 trln yen in bad loans held by the banks and thereby boost the stockmarket. "Unless major banks can resolve the bad loan issue within two years, the Japanese stock market will not benefit, even if securities-tax breaks are introduced," Ohara told a meeting of business leaders. "The FSA and BoJ need to cooperate in creating a system to inject public money into major banks to promote bad-loan disposals within two years," he said. "First, banks should write off non-performing loans with their own capital, which should then be boosted with public injections of money through purchases of common stock issued by the banks to the government," he said. "The government should abandon the right to receive dividends and waive voting rights," he said. Ohara said that on top of the 12 trln yen of loans designated as gone bad by the banks, the government should also consider the 20-30 trln yen in so-called grey loans, which are of doubtful quality. "After the action, some of those companies that have the possibility of reviving their business should receive loans from the BoJ," he said. The government should also reduce the size of allowable cross-shareholdings by banks in companies in which they hold links beyond the planned limit of 100 pct of a bank's capital, he said. "I think the limit should be lowered to 50 pct some time in the future and finally to zero," Ohara said, noting that some banks already aim to cut their cross-shareholdings to half of their capital. On government debt, he added that on top of the 660 trln yen in money owed by the central and local governments, the 77 major government-linked corporations owe some 300 trln yen. "If the government tries to issue 100 trln yen in new bonds to refund the redemption of mature bonds each year, the long-term interest rate will soar to 5 pct in nine years," Ohara said. "If the 5 pct rate was applied to the combined 960 trln yen public-sector borrowings, the government would have to use all of its tax revenue accounts, of around 50 trln yen, with no room to spend on policy measures," he said. He noted that the government currently issues around 70 trln yen in redemption bonds per year.

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