The government should extend additional guarantees of up to 10 trillion yen to Deposit Insurance Corp. to help boost financial institutions' capital and prevent their collapse, the ruling Liberal Democratic Party basically decided Wednesday.
As a result, the DIC would be entitled to 20 trillion yen in government guarantees on the funds it borrows from such lenders as the Bank of Japan. In addition, key members of a party panel on financial stability agreed that 3 trillion yen worth of government bonds given to the DIC would be used to help recapitalize financial institutions through purchases of their preferred stock and other means.
This 3 trillion yen is part of the 10 trillion yen in bond issues the government would give to the DIC for offering aid to financial institutions that accept operations of a failed bank and recapitalize still-operative banks.
At the same time, a seven-member screening board -- including the finance minister, the Bank of Japan governor and the head of the soon-to-be-formed financial supervision agency -- should be established to decide which banks should get DIC help to recapitalize, the LDP said.
In effect, roughly 13 trillion yen worth of government-backed funds would be placed at the disposal of the DIC to help keep financial firms afloat, even though the current debate on the infusion of public money stemmed from the need to ensure depositor protection. These measures would be written into legislation to be presented to the next Diet session that starts in January, and would remain in effect until March 2001, at which time a compensation limit of 10 million yen per depositor would take effect.
The LDP had been studying the specifics for their financial system stability package released earlier in the month, and was to discuss these details with its allied parties, the Social Democratic Party and New Party Sakigake, later in the day for final approval. The SDP so far has been skeptical of the LDP proposals, saying too much weight has been placed on saving banks rather than depositors.
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