Financial Services Agency chief Hakuo Yanagisawa said Friday the government may protect deposits at small savings associations as a safeguard against chaos after blanket deposit protection at failed banks is abolished in April.
"We make decisions case by case," Yanagisawa said after a Cabinet meeting.
"But we cannot rule out the possibility of fully reimbursing deposits at "shinkin" (credit) banks and credit unions if we judge there would be serious effects on regional economies."
Shinkin banks and credit unions are similar to savings and loan associations in the United States.
Yanagisawa also said he will consider whether to expand a 15 trillion yen pool of public funds that will be tapped when the government needs to alleviate a crisis in the banking sector.
"It is natural for financial authorities managing the system to have various ideas for use (of funds)," he said, without elaborating.
Prime Minister Junichiro Koizumi has said the government will abolish the unlimited guarantee for time deposits on April 1, and for ordinary deposits on April 1, 2003.
Government-backed guarantees for full repayment of deposits at failed institutions will end April 1. After this date, the Deposit Insurance Corp. will only guarantee time deposits of up to 10 million yen per depositor.
The limited-guarantee system was initially scheduled to be introduced in April 2001 but was postponed because the ruling coalition feared it could trigger a financial crisis if depositors shifted money away from troubled banks en masse.
The guarantee was introduced during a period of turbulence in the financial system in 1996 to discourage companies and individuals from withdrawing deposits in fear of bank failures.