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A new bank recapitalization bill is expected to clear the Lower House today and the Upper House by the end of this week as at least two opposition parties have agreed to jointly propose the bill put forward by the ruling Liberal Democratic Party.

The Liberal Party and Heiwa-Kaikaku parliamentary group agreed Monday night to the LDP’s revisions to the bill, which aims at helping banks that are short of capital to stay afloat.But the Democratic Party of Japan, the largest opposition party, rejected the LDP revisions and submitted its own bill to the Diet on Monday night.

The newly proposed capital-injection mechanism calls for the government to buy prescribed percentages of banks’ common and preferred stocks in rough proportion to the degree of depletion of each bank’s capital-adequacy ratio.To facilitate agreement on the legislation, Prime Minister Keizo Obuchi held separate talks with heads of the opposition forces Monday night.

The meeting followed talks among the secretaries general and policy chiefs of parties on both sides, during which the LDP presented a set of compromises based on proposals from the opposition camp.The compromise package imposes stricter requirements on banks wishing to receive public funds. Specifically, it requires banks to disclose information on their stockholdings and to publicize their progress on restructuring plans.

A provision was added to penalize banks that make false statements concerning their restructuring plans, but the severity of the penalty was not disclosed.It also clarifies conditions for banks to receive public money.

The government can purchase preferred shares of financial institutions with capital-adequacy ratios above 8 percent on the premises that: 1) recipient banks agree to absorb a failing bank, thereby spurring realignment in the financial sector;2) and it is perceived indispensable to prevent a rapid and large-scale credit contraction.

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