Financial Reconstruction Minister Hakuo Yanagisawa said Tuesday that he is worried that some small regional banks may lose their sense of survival management and depend too much on what he considers a “perfect” safety net set up by the government.
Yanagisawa’s statement comes in the wake of Sunday’s collapse of Kokumin Bank, a second-tier regional bank placed under state administration, based on the financial revitalization law.
He added that he was not specifically citing Kokumin Bank as an example of such moral hazard. He also said his concern is not directed at major banks.
“I am wondering how to prevent any bank from deliberately crashing,” he said in a Tokyo speech. Second-tier regional banks that cannot make money and become desperate “may not be scared of collapsing because of the extremely perfect safety net in place.”
Yanagisawa was referring to the 60 trillion yen government framework set up in October to cope with the banking sector crisis. It includes an 18 trillion yen fund for state control of failed banks and a 25 trillion yen fund for capital injection.
Yanagisawa, also head of the Financial Reconstruction Commission, stressed that the safety net must be used only as a last resort. Bank managers must do all they can to avoid a failure by asking friendly firms to help raise capital or short-term funds, he noted.