A working group under a governmental advisory panel on financial affairs was inaugurated Thursday to examine a controversial proposal by Financial Services Minister Heizo Takenaka to change accounting rules that would force many major banks into capital shortfalls.

Officials of the Financial Services Agency explained the issue during a meeting of the working group under the Financial System Council.

The proposed rules would limit deferred tax assets a bank can count as core capital, known as Tier 1, to within 10 percent.

Analysts say such assets currently consist of 30 percent to 50 percent of banks’ equity capital.

Members of the working group include Takeshi Kimura, president of consulting firm KPMG Financial Inc. and a former Bank of Japan official.

He has been advocating the implementation of harsh measures to reform the banking sector.

One member said the introduction of new accounting rules should accompany preferential tax treatment for banks in their disposal of nonperforming loans, according to an FSA official.

The issue was raised in a bank revival program compiled by Takenaka in late October.

The working group is expected to compile an interim report in six months, after listening to the views of major and regional banks, the official said.

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