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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