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Three major opposition parties told the Diet on Friday they are determined to block any government move to inject public funds into the ailing Long-Term Credit Bank of Japan.

Legislators from the three — the Democratic Party of Japan, the Liberal Party and Shinto Heiwa (New Peace Party) — issued the pledge during a House of Representatives plenary session being held to discuss the three parties’ joint bills for reconstructing the financial system.

Opposition leader Naoto Kan urged the ruling Liberal Democratic Party to make a substantial compromise on bills it and the government submitted last month. There are major differences between the LDP package and that of the opposition.

The opposition’s plan, for instance, includes abolishing the existing financial system stabilization law, which would make it impossible for the government to inject public funds into the LTCB.

As the Diet standoff intensifies, time is running out on the LTCB to file an application asking for up to 800 billion yen in public funds to help it dispose of bad loans and replenish its capital base.

The government has said a public funds injection is necessary to prevent a potential LTCB failure from severely impairing the domestic financial system and the economy — and to forestall possible damage to the global derivatives market.

The opposition’s package basically calls for liquidating failing banks and paying off depositors without allowing government-backed “bridge banks” to take over their lending functions.

The opposition is demanding that if the failure of a major bank threatens to trigger a chain reaction of bankruptcies at other financial institutions, the failed bank would be nationalized and the bank’s bad loans would be sold to a proposed bank-resolution and collection body.

In nationalizing a bank, the government would buy all the bank’s shares at a price set by a government committee. The opposition bills, then, are demanding that shareholders pay for the price of refinancing a failed bank; the LDP and government want to place the burden on taxpayers.

DPJ legislator Hidenari Ito told the Diet session, “This (forced share purchase) clause of ours would not constitute a violation of citizens’ rights to their property as mandated by the Constitution.”

Kan criticized the government’s package for “aiming to forgive the debts of general contractors and dubious (investors) who capitalized on the bubble economy.”

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