Bank of Japan Gov. Masaru Hayami on Monday pledged the central bank would take action in the event Japan was threatened with another financial-system crisis.

"If an unexpected incident breaks out, we will counteract it by conducting sufficient preparations," Hayami said at a session of the House of Representatives Budget Committee.

In November 1997, the nation's banking system took a blow from a string of institutional failures, including that of Hokkaido Takushoku Bank. In 1998, the bad loan-swamped Long-Term Credit Bank of Japan and Nippon Credit Bank were nationalized to keep their outright failures from destabilizing the banking system.

Hayami told the committee that the BOJ "could take advantage of Lombard-style central bank lending and the provision of unsecured special loans" to help cash-strapped banks refund depositors fully. The present safety net mechanisms are better equipped than those we had in 1998."

Lombard-style lending refers to speedy central bank loans to financial institutions.

Hayami, however, acknowledged that accelerating slides in share prices of banks reflect flagging confidence of market players in what he called the "serious ongoing efforts" by banks to strengthen their financial health.

He defended major banks for having implemented "a series of bold measures" to bolster their financial health "over the past one-month period."

The central banker pointed out that the nation's 13 major banks plan to book huge loan-loss charges in the 2001 business year and focus on providing loans to companies on which they can impose higher lending margins to boost profitability.

In late November, the 13 banks announced they will sharply increase loan-loss reserves for troubled corporate borrowers while booking a combined loan-loss charge of 1.93 trillion yen in closing midterm books for the period ended Sept. 30.

The 13 banks said they will book a combined 6.26 trillion yen in loan-loss charges for fiscal 2001, thereby racking up 2.29 trillion yen in combined group net losses in the full year.

Seven of the 13 banks said they plan to delve into their legally mandated reserves -- a key component of their capital -- to cover the prospective full-year losses.

On Friday, Financial Services Minister Hakuo Yanagisawa expressed willingness to inject public funds into the depleted capital bases of troubled banks to defend the financial system if a financial crisis were to threaten stability.

The revised Deposit Insurance Law empowers the government to funnel up to 15 trillion yen into the capital accounts of banks in cases where the stability of the regional and national banking systems is seriously threatened.