The Cabinet approved a bill Oct. 9 that would revise the Deposit Insurance Law and allow the use of funds from Deposit Insurance Corp. to aid mergers involving two or more failed financial institutions until the end of fiscal 2000.It would be the second time in as many years for revising the law, highlighting lingering concerns over the health and stability of the nation's financial firms. The bill aims to galvanize existing measures to prepare for possible financial failures. It will be submitted to the current extraordinary Diet session.The proposed legislation would enable the DIC to extend financial aid to mergers between financial institutions that have become unable to meet depositors' withdrawal demands. Such mergers would need to be mediated by the finance minister or the head of the new agency for financial supervision, once it is established next July.Additionally, the financial institutions' restructuring plans would have to be endorsed by authorities, which would reduce the chances of shoddily managed banks being saved by the deposit insurance system, according to Finance Ministry officials. This form of assistance would only be effective up to the end of March 2001, but the revision stipulates that deposit insurance money could be used to assist a merger involving healthy banks and a problem bank.Proponents say the bill increases the range of possibilities to deal with ailing financial institutions, especially as realignment in the nation's financial sector is widely expected with the upcoming implementation of "Big Bang" financial deregulation. But critics argue that the scheme only increases pressure on Deposit Insurance Corp., which is funded through premiums paid by financial institutions.
