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The Financial Services Agency will conduct a followup audit of major banks’ books by Sept. 30 to ensure they register loan-loss charges in accordance with FSA inspectors’ earlier findings on the quality of their loan portfolios.

The on-the-spot checks will concern the 15 major banks whose books were examined by FSA inspectors in the past year, the FSA said Monday.

FSA Commissioner Shoji Mori suggested that the followup is aimed at boosting the confidence of foreign investors and governments in the accuracy of loan-quality assessments by the FSA.

The inspectors will seek to verify whether the banks have set aside additional loan-loss reserves in accordance with the FSA’s earlier assessments of the quality of their outstanding loans, which are usually stricter than those of the banks themselves.

They will also try to verify whether the banks have reclassified some corporate borrowers whose financial health has worsened as borrowers whose creditworthiness is lower than it used to be.

On Jan. 31, the FSA said Japanese banks have 63.9 trillion yen in problem loans. But the Democratic Party of Japan said on April 18 the combined sum of bad loans at all Japanese lenders is 151 trillion yen.

Mori told a news conference that economists and other financial experts “have doubted the disclosed amounts of bad loans held by banks, so we want to alleviate these doubts completely by conducting the (followup) inspection.”

The FSA also said its inspectors will check the banks’ preparedness for the planned abolition on April 1 of the current blanket government guarantees of deposits of any amount at banks that go insolvent.

The government plans to impose a per-depositor cap of 10 million yen per bank on the sum of deposits it is legally allowed to reimburse in the event of a bank failure.

At present, the government is authorized to fully refund depositors at failed banks to forestall any panic-induced run on the banking system.

In late 1999, the government decided to postpone the imposition of the cap until next April 1 for time deposits, and until April 1, 2003, for ordinary deposits. Therefore, the deadline for time deposits is only eight months ahead.

The FSA inspectors will check how far the banks have progressed in totaling deposits in multiple accounts held by one individual at a single bank, the agency said.

Such an advance computation is necessary if the government is to quickly refund deposits below the 10 million yen limit to allay any panic.

The inspectors will also check the preparedness of banks to handle a financial crisis that could occur if numerous depositors swarm to bank branches to get their money out, the agency added.

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