The new bank recapitalization bill designed to keep capital-short banks afloat cleared the Lower House Tuesday and was immediately sent to the Upper House, which is expected to enact the measure Friday.

The bill, drafted by the ruling Liberal Democratic Party and revised based on proposals from elements of the opposition camp, cleared a Lower House special committee on financial stabilization and then the chamber’s plenary session with support from the LDP, the Liberal Party, the Heiwa-Kaikaku parliamentary group and the Social Democratic Party.

The largest opposition party, the Democratic Party of Japan, and the Japanese Communist Party voted against the bill. The DPJ submitted its own bill to the Diet, but it was voted down. The DPJ criticized the LDP-drafted bill, saying the scheme would allow the survival of insolvent banks by using taxpayers’ money.

During separate talks Monday night with Prime Minister Keizo Obuchi, Liberal Party and Heiwa-Kaikaku leaders agreed on the LDP-proposed revisions to their own draft of the bill.

The revisions include stricter requirements on banks wishing to receive public funds, including mandating those banks to disclose information and requiring them to publicize the progress of their restructuring.The new capital-injection mechanism would replace the current plan of injecting up to 13 trillion yen in public funds into banks to boost their capital bases.

The law states that the amount of public funds available under the new scheme will be determined by the Diet.The new legislation calls for the government to buy prescribed percentages of a bank’s common and preferred stock in rough proportion to the degree of depletion of the bank’s capital-adequacy ratio.Banks with capital-adequacy ratios between 0 percent and 2 percent, for instance, would be required to drastically scale down their business, go bankrupt or agree to be absorbed.

They are allowed to receive public funds only when their continued operation is indispensable to regional economies.In exchange for receiving public funds, financial institutions would be required to draft and submit a restructuring plan to a regulatory authority, then regularly report on and publicize the progress.

A provision to the revision was added to penalize banks that make false statements on their progress or such matters as the amount of bad loans in their restructuring plans. The fine is not to exceed 500,000 yen (about $4,230).

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