The Diet passed a bill Friday designed to bolster the functions of the state-run Resolution and Collection Corp. to help banks accelerate the disposal of bad loans by selling them to the RCC.
The House of Councilors approved the bill, which will amend the Financial Reconstruction Law. The House of Representatives had already endorsed the bill and the legislation is expected to take effect in January.
The revised law would allow the RCC to purchase bad loans from banks at market value while requiring it to do its best to dispose of those bad loans within three years of purchase.
The RCC normally purchases loans at less than 5 percent of their original book values due to the current law that effectively bars the entity from incurring losses when it sells bad loans bought from banks.
The bill would also allow the RCC to participate in an auction when it buys loans from banks and to establish an internal fund to help in the rehabilitation of companies whose loans it purchased.
The changes in the RCC's operations were proposed by a key advisory panel to Prime Minister Junichiro Koizumi on his planned sweeping reform program.
The program calls for Japanese banks to dispose of their bad loans in two to three years.