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The government may delay the April 1 imposition of a 10 million yen cap on refund guarantees for ordinary bank and other liquid deposits until financial institutions are fully prepared to introduce new, settlement-specific bank accounts, Chief Cabinet Secretary Yasuo Fukuda indicated Thursday.

“We will implement the refund cap after keeping track of financial institutions’ views on the preparation of their computer systems,” Fukuda told a regular news conference.

The idea of postponing the cap for ordinary accounts arose from the recommendations of a government panel. The panel suggested that the government offer to permanently protect settlement-specific accounts, where many depositors may shift their money to reduce the risk the cap will pose to ordinary accounts.

The government now appears to be leaning toward the idea of delaying the 10 million yen cap for ordinary deposits while imposing it on all other types of liquid deposits — except checking accounts — as scheduled on April 1.

“The government will maintain the basic framework of the deposit guarantee but will ensure the stability of settlement accounts so that confusion will be avoided,” Prime Minister Junichiro Koizumi told reporters.

Calls for postponing the cap on ordinary deposits and other types of liquid bank savings beyond April 1 have been mounting among business organizations, small financial institutions, and lawmakers from the ruling coalition.

Hiroshi Okuda, chairman of the Japan Business Federation (Nippon Keidanren), said the same day that he was opposed to introducing settlement-specific accounts and that the refund cap should be postponed instead.

The cap should be imposed when the economy is recovering, he said at a news conference in Sapporo.

“Stock prices have been falling and shifts of deposits have been observed in regional areas. Under such circumstances, I think the current (deposit insurance) system should remain intact,” he said.

Fukuda repeated the government’s official stance later in the day: “We are not considering a postponement at the moment.”

A Financial Services Agency official said the agency will consult with financial institutions over their preparations for introducing settlement-specific accounts that will be fully protected by the government.

These consultations may lead to a grace period in which financial institutions can prepare their computer and other systems fully for the introduction of the limited guarantee system.

Government sources said the government hopes to lift the grace period sometime after the Golden Week holiday in May.

In a related move, the Financial System Council, an advisory panel to the prime minister, adopted a set of proposals Thursday that advocate full, permanent refund guarantees for interest-free settlement-specific bank accounts after the cap system takes effect.

Takaoka National College President Shoichi Royama, who headed the working group that compiled the proposals, told reporters that it is up to the government to decide how the measures should be implemented.

Royama said he is not concerned whether financial institutions introduce the new accounts in April.

“I think it is acceptable that the schedule for the introduction differs among financial institutions,” he said.

The council defined the new accounts as interest-free settlement accounts whose deposits can be withdrawn anytime on demand.

The agency plans to revise the Deposit Insurance Law to allow the introduction of the new accounts; the bill will be submitted to the Diet during an extraordinary session that may convene in October.

The bill will probably seek the imposition of a preparatory period beyond April 1, government sources said.

The FSA is concerned that the nation’s settlement system may be thrown into chaos if the refund cap and the fully protected new bank accounts are introduced at the same time, according to the sources.

Masashi Teranishi, chairman of the Japanese Bankers Association, said in a statement that the association fears that the introduction of the new account may cause confusion among banks and increase their financial burdens.

“We cannot wipe out concern that banks may not be able to deal with it (the introduction of the account) without causing any confusion in a limited space of time,” the statement says.

Another banking official said banks will need several months to prepare for the new accounts.

“We need enough time to fully prepare for that, given the need to conduct preparatory tests” for computer systems, the official said.

Early April is usually a busy period for corporate transaction settlements; last April, the two newly launched banks of the Mizuho Financial Group suffered from massive computer glitches.

Meanwhile, a representative of a “shinkin” bank credit association asked the government to delay the imposition of the refund cap for three to four years, sources said.

Yukihiko Nagano, chairman of the National Association of Shinkin Banks, made the request at a meeting of the Financial System Council.

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