A key ruling coalition figure said Monday that legislation should be enacted to extend the government’s full-refund guarantee on demand deposits at failed banks beyond March 31, the scheduled termination date.

“If the government doesn’t want to do that, we need to think about lawmaker-initiated legislation,” said Takeshi Noda, head of the New Conservative Party, a ruling bloc partner of the Liberal Democratic Party and New Komeito.

Noda’s comments were taken as an indication that his party will formulate a bill if necessary to try and block the government’s move to abolish the full protection of demand deposits.

On April 1, the government imposed a reimbursement cap of 10 million yen per bank per depositor on time deposits. A similar cap on ordinary deposits is planned beginning April 1, 2003.

The ceiling is one of the government’s major policies designed to force weak banks to restructure, and Prime Minister Junichiro Koizumi has remained supportive of it.

“That’s an insensible thing to do,” Noda said, criticizing the government’s plan.

Noda said many small and midsize firms in regional areas are dependent on local financial institutions for their financing.

If the government’s full protection is lifted, more depositors may shift their money away from regional banks that are thought to be weak to bigger banks, according to some analysts.

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