Shiokawa backs use of public funds for banks

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Reappointed Finance Minister Masajuro Shiokawa expressed strong support Tuesday for recapitalizing banks with public funds to accelerate their disposal of bad loans.

The financial sector is fragile because the core capital of major banks is being artificially increased by deferred tax-effect assets and does not reflect their true situation, Shiokawa said a day after Prime Minister Junichiro Koizumi reshuffled his Cabinet.

“Actual core capital that banks should be proud of is only about 50 percent of their capital,” he said. “Such a situation can be called ‘abnormal.’ “

If financial institutions actively dispose of bad loans and reveal their true condition to the public, it throws further doubt on the Japanese financial system, he said.

Therefore, it is important to bring the banks’ core capital into proper form by recapitalizing them with taxpayer money, he said.

At the same time, Shiokawa stressed that outside the financial sector, the economy is returning to health, as indicated by such factors as the trade surplus and foreign currency reserves.

“Overall, the Japanese economy is not so bad from the viewpoint of fundamentals.”

But because the financial sector is weak, those who want to expand business and launch new operations are not getting the necessary funding and moving overseas, Shiokawa said.

“The Japanese industry is hollowing out. It is clear that the power of the country’s financial sector is weak.”

Banks apparently are loathe to be recapitalized with public funds like they were in 1998 and 1999, because this would allow the government to interfere in their management by holding significant shares of their stock.

“It is the selfishness (of the banks). We should try it out to get through this (difficult) time,” he said, referring to the recapitalization idea.