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The Bank of Japan should extend emergency loans to troubled major banks to prevent the enormous impact their failure will have on Japanese and global financial systems, Finance Minister Kiichi Miyazawa said Wednesday.

“If we let major banks go bankrupt, it will cause an immeasurably immense impact,” he said. “To prevent such an event, it is important that the Bank of Japan or the Deposit Insurance Corp. be there right behind failing banks.”

Specifically, Miyazawa said he would invoke article 38 of the Bank of Japan Law should any of the nation’s major banks be found on the verge of collapse.

The law stipulates that the finance minister can instruct the BOJ to extend loans to a failing financial institution for the sake of maintaining order in the financial system.

Miyazawa was responding to a question from Kazuo Kitagawa of the Heiwa-Kaikaku parliamentary group during the Lower House Budget Committee session.

During the same session, BOJ Gov. Masaru Hayami also stressed the need to avoid major bank failures, pointing to their extensive networks overseas and huge amounts of derivative transactions on the global market.

He said that banks must make utmost efforts to help themselves by carrying out aggressive restructuring, merging with or being acquired by other financial institutions.

The governor also urged each bank to voluntarily disclose the amount of their so-called “second category” loans and dispose of them as soon as possible.

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