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The Diet will soon pass a bill for injecting public funds into ailing banks to cure a financial system swamped with bad loans, now that two opposition groups have dropped their objections, according to ruling and opposition officials.The bill to establish a new bank recapitalization mechanism, submitted Wednesday to the Lower House by the Liberal Democratic Party, will clear the Diet during the current extraordinary session, they said.Both chambers of the Diet approved the extension Wednesday of the present session, which was to end the same day, by nine days to Oct. 16.The LDP plans to push the bill through both chambers after two days of debate in each house, party officials said. The prospect of the bill’s passage has been bolstered after the Heiwa-Kaikaku parliamentary opposition group and the Social Democratic Party agreed to drop their objections in exchange for certain revisions, the officials said.The Democratic Party of Japan, the largest opposition party, meanwhile remains firmly opposed to the LDP scheme, which imposes far more lenient conditions for using taxpayer money than they can condone. The DPJ plans to offer amendments to the LDP legislation when deliberations begin. To gain support from other opposition parties, DPJ officials discussed the LDP’s legislation with officials of Heiwa-Kaikaku, the Liberal Party and the SDP.The LDP bill, if passed, will replace the existing bank recapitalization law, which is to be scrapped shortly as part of a separate opposition-drafted package of bills that dictate how to deal with failed banks. Those bills are set to clear the current Diet session.The Group of Seven industrialized nations issued a communique Saturday urging Japan to enact “measures to support viable banks with public assistance in sufficient amounts” to prevent a chain reaction of bank failures.The bill setting the legal framework for the recapitalization of banks will go into force within 10 days after the day of promulgation. The aim of the bill is to help revive the nation’s economy as well as its financial system by making financial functions healthier through such means as creating an emergency mechanism to boost financial institutions’ capital bases.The key points of the measure include prevention of excessive damage to the nation’s financial functions, encouraging self-efforts by financial institutions to improve their operations and clarify responsibilities of management and shareholders, and improving the efficiency of the financial system as a whole by promoting realignment of the sector. The new capital-injection mechanism calls for the government to buy prescribed percentages of common and preferred stock of banks in rough proportion to the degree of depletion of each bank’s capital-adequacy ratio.

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