Financial institutions that want the Deposit Insurance Corp. to purchase their preferred stock will first be required to submit management improvement plans to ensure that public funds will not be used too freely to bail out ailing banks, a top Finance Ministry official said Thursday.Banking Bureau Director General Kimio Yamaguchi told the Upper House Finance Committee that such wording would be included in a bill tentatively called the Financial System Stabilization Law, to be submitted to the Diet during the upcoming session.A new screening body that includes the finance minister and the Bank of Japan governor will be set up within the DIC to decide unanimously on whether to purchase the preferred stock, he added.The DIC would be able to buy the preferred stock or subordinated bonds of financial institutions through the Resolution and Collection Bank to help shore up their capital base.These purchases would be made possible with loans of up to 10 trillion yen from the BOJ and other lenders that would be guaranteed by the government. In addition, if the DIC incurs losses through the purchases, it would be able to cover them by having the government convert into cash a maximum 3 trillion yen worth of government bonds that it would receive under the law.
