A government advisory panel on nonfinancial firms' entry into the banking and insurance sectors issued a final report Thursday that was slightly watered down from an interim report.

In the new report, the Financial System Council altered two regulations that had come under criticism. One would require parties planning to buy 20 percent or more of a bank's or insurer's outstanding shares to undergo background inspections.

Authorities could block a deal if they are not satisfied with the background check.

Critics argued that the interim report, which called for background checks of parties wanting to buy stakes of 5 percent or more, would hinder new entrants into the financial sector.

Under closer scrutiny, however, the new guidelines are not much different: They give financial regulators discretionary authority to demand that parties planning to buy stakes of between 5 percent and 20 percent also undergo background checks.

The council said the background checks are designed to keep undesirable shareholders from exerting influence over banks or insurance companies.

The council took the same route in diluting another criticized proposal that originally called for shareholders with stakes of 20 percent or more to provide financial support if their banks or insurance companies fall into disarray.

The threshold was raised to 50 percent in the final report, but regulators are again given discretionary authority to demand that parties with stakes as low as 20 percent also pour in additional funds.

The new report does not lay down specific conditions under which the authorities would be allowed to exercise their discretion.

Based on the new guidelines, the Financial Services Agency is expected to prepare bills to amend existing banking and insurance business laws for submission to the next Diet session in January.

If the bills become law, they will govern industry newcomers applying for bank licenses, such as top retailer Ito-Yokado Co., and investors who attempt to take over existing banks. There is currently no clear-cut legal framework regulating nonfinancial firms' entry into the banking sector.

The new guidelines say regulations governing banks should apply to insurers because the failure of an insurance company could force the government to extend public funds.

Hakuo Yanagisawa, chairman of the Financial Reconstruction Commission, appeared to be content with the final report. "The entry of industry newcomers will help promote competition and improve the quality of services for consumers," he said.

Holding firm gets nod

Shareholders of the Bank of Tokyo-Mitsubishi group financial institutions on Thursday formally approved a plan for BTM, Mitsubishi Trust & Banking Corp. and Nippon Trust Bank to launch a joint holding company.

The shareholders' approval, gained during separate extraordinary meetings, paves the way for the April 2001 launch of the Mitsubishi Tokyo Financial Group Inc.

Shareholders of Sanwa Bank, Tokai Bank and Toyo Trust & Banking Co. also approved a plan for the three to set up a joint holding company next April. This will be called UFJ Holdings Inc.

BTM, Mitsubishi Trust and Nippon Trust will integrate their management under the holding firm, as will Sanwa Bank, Tokai Bank and Toyo Trust.

Moreover, Mitsubishi Trust, Nippon Trust and Tokyo Trust Bank, a wholly owned subsidiary of BTM, will merge in October 2001. Sanwa Bank and Tokai Bank plan to merge in April 2002.

During Thursday's meeting of shareholders at Tokai Bank, some stakeholders questioned the bank's decision not to assist failed life insurer Chiyoda Mutual Life Insurance Co., despite earlier indications that it would do so. In response, Managing Director Takeshi Sugihara said that the bank had "fully looked into the matter" and had found nothing amiss.

Japanese banks are realigning themselves into four large groups, including the Mitsubishi Tokyo Financial group and the UFJ group. The biggest is the Mizuho Financial Group, launched in September by Dai-Ichi Kangyo Bank, the Industrial Bank of Japan and Fuji Bank.

Sumitomo Bank and Sakura Bank plan to merge in April 2001.