The nation's 19 major banks should be prevented from failing at all costs, Bank of Japan Gov. Masaru Hayami indicated, adding that troubled institutions should be merged with healthy ones instead of being left to collapse.
Minimizing the impact of bank failures on the overall financial system is the most urgent task for the central bank, Hayami told a regular news conference on Thursday.
"The collapse of Japan's 19 major banks could have a great influence on the financial system," he said. "Financial authorities must prevent their failure, especially those that deal in derivatives and have overseas relations."
"Sudden failures should be avoided," he said. "Weak institutions should be merged with healthy ones to minimize negative effects on the third party and overseas institutions."
Hayami admitted that it may be difficult to apply the government's "bridge bank" plan to the 19 top banks, which comprise nine "city" banks, three long-term credit banks and seven trust banks. The plan is designed to enable fund flows to continue to sound borrowers at failed financial institutions, and a set of six bills to implement the scheme have been submitted to the Diet for deliberation.
Transferring the management of a failed large bank is considered difficult under the planned scheme because the new financial institution would need a tremendous amount of funds. However, Hayami said the bridge bank scheme should be applied to rescuing those banks if possible.