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Financial Services Minister Hakuo Yanagisawa blasted several regional financial institutions Friday for asking the government to keep the full guarantee on current deposits beyond its planned termination date of April 1, 2003.

Limiting refunds to 10 million yen per depositor in the event of a bank failure under the official deposit insurance system “is a matter of course,” Yanagisawa said. “It is important for those financial institutions to develop the capability to withstand the abolition of the official full-deposit protection and secure the confidence of depositors.”

Yanagisawa’s remarks followed a string of appeals from the chiefs of regional bank associations and local financial institutions whose members are reeling from flights of deposits following the abolition of the full protection of time deposits on April 1.

On May 15, Hiromichi Morimoto, chairman of the Second Association of Regional Banks, drew attention to the calls from some of its member banks to maintain the official full-refund guarantee on current deposits — funds that can be withdrawn at any time — beyond April 1, 2003.

Morimoto said the refund limit has increased the chances that depositors, panicking over the poor health of their banks, might withdraw large sums en masse, which some economists have warned would undermine the entire banking system by provoking a string of failures.

Earlier, Yukihiko Nagano, chairman of the National Association of Shinkin Banks, called for the blanket guarantee on current deposits to be maintained until the economy recovers or reaches a point at which the abolition would not fuel an economic crisis.

Nagano said that if the refund limit is imposed, “it could induce a shift of funds (from weaker to healthier banks).”

On April 1, the government imposed a cap of 10 million yen per bank per depositor on the sum of time deposits it will reimburse in the event of a bank failure.

In 1996, after a series of runs on large credit unions and banks, the Diet legislated a full-refund guarantee in order to protect depositors’ assets and dissuade them from panicking.

Said Yanagisawa, “I question the appropriateness of their attitude of counting on the government’s (full refund) guarantee for maintaining public confidence” in the stability of financial institutions.

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