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The Financial Services Agency is considering raising the limit of the government’s full-refund guarantee on deposits as a special case for merged financial institutions, Financial Services Minister Hakuo Yanagisawa hinted Tuesday.

“We are considering a variety of measures to encourage (regional) financial institutions to form mergers,” Yanagisawa told a news conference, adding that raising the refund limit is an option.

The government imposed on April 1 a cap of 10 million yen per bank per depositor on time deposits it would reimburse in the event of a bank failure under its deposit insurance system.

It plans to impose a similar cap on ordinary deposits, checking accounts and other types of liquid bank savings starting next April 1. Liquid deposits are assets that can be cashed in on demand.

The 10 million yen refund guarantee limit will also be imposed on merged banks.

If a depositor, for example, has 7 million yen in savings in each of two banks to be merged, 4 million yen will not be covered by the refund guarantee once the banks merge.

Regional banks are reluctant to form mergers apparently over concerns that depositors may withdraw their savings from merged banks and move them to other financial institutions to protect their deposits.

The FSA reportedly thinks raising the 10 million yen limit for merged banks for a certain period of time may be necessary so regional institutions won’t be discouraged from forming mergers.

The FSA has been encouraging regional financial institutions to merge or enhance alliances to strengthen their businesses.

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