A major bank without a merger plan could be placed under the “bridge bank” scheme if it fails, Finance Minister Kiichi Miyazawa said Tuesday during the Diet’s extraordinary session.

Miyazawa brought up the hypothetical situation as he stood before the House of Representatives Plenary Sitting. The Diet has begun debate on a set of six bills aimed at reviving Japan’s crippled financial system.

It is the first time the government and the ruling Liberal Democratic Party have explained the contents of each bill before the Diet. If the financial system bills are passed next month, it will be considered a watershed for the nation’s banking crisis and its potential to trigger global financial disaster.

In the way stands the opposition parties, who are questioning the handling of the LTCB situation, the effectiveness of the bills and the risks they represent.

The issue is the government’s “bridge bank” scheme and whether the government should use it to handle a major bank failure. Miyazawa said that if a major bank with no plans to merge with another bank fails, then it cannot receive public funds, meaning its subsequent liquidation would leave borrowers unprotected. After failure, however, the bridge bank scheme can be applied and borrowers protected with continued lending, he said.

But opposition party members and others questioned the usefulness of such a scheme because the government appears unwilling to take the plunge and allow major banks to fail.

Taro Kimura, a Kaikaku Club legislator, asked if an LTCB collapse would trigger a global chain reaction. Miyazawa replied that the bank’s principal for derivatives it manages is around 50 trillion yen and that it deals with a number of financial institutions here and abroad. If LTCB were to default, he said, it could set off a worldwide financial depression.

Other legislators questioned the ability of the government-backed Deposit Insurance Corp.’s examining committee.

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