The Financial Reconstruction Commission will soon announce guidelines defining the circumstances under which the state might exert control over some of the banks that have received public funds, FRC Chairman Hakuo Yanagisawa said Wednesday.

Yanagisawa was referring to the government's option to convert its holdings of banks' preferred stocks into common stocks, which would allow the state to intervene in the management of banks.

The state acquired the stocks through public fund injections.

In a speech at a Tokyo hotel, Yanagisawa said the government may exercise the option if banks do not faithfully carry out their management-improvement plans, which were submitted to the FRC in the application process for the capital injections.

The guidelines "are not going to be anything very surprising," Yanagisawa said. "Is the management of the banks sound? Are they contributing to the stability of the financial system? If not, we may have to say something as stockholders by converting (preferred stocks) into common stocks."

Preferred stocks give shareholders priority over dividends, but they do not provide voting rights.

The FRC decided in March to inject 7.46 trillion yen in public money into 15 major banks, partly by purchasing their preferred stocks.

If the government deems it necessary, the preferred shares it owns in Daiwa Bank and three trust banks — Chuo, Mitsui and Toyo — could be converted early next month. The government cannot convert the shares of the remaining 11 banks before a set date, and that date varies from bank to bank, ranging from two years to 7 1/2 years.

"Our priority is to make sure that the injected capital will not be lost," Yanagisawa said, noting it boils down to profits.

The government will not need to convert preferred stocks if the banks' earnings are in line with their submitted plans, he said.