A newly enacted law allowing the government to inject public funds into regional financial institutions will probably encourage such bodies to merge, according to the commissioner of the Financial Services Agency.

The law is “a very effective tool” for promoting mergers and management reforms among regional financial institutions with weak capital standing, FSA Commissioner Hirofumi Gomi said in a recent interview with Kyodo News.

His comments indicate many regional banks have shunned mergers as positive effects are unlikely to be generated due to a lack of capital.

Potential demand for fund injections exists in the regional banking sector, Gomi said.

The legislation, which will be enforced Aug. 1, will allow the government to infuse up to 2 trillion in taxpayers’ money into financial institutions in fiscal 2004, even if they are not insolvent.

The measure is expected to help cash-strapped regional banks in their efforts to dispose of bad loans and merge with other lenders.

Gomi, who assumed the post July 2, said the financial strength of regional banks varies. No banks have problems with the “soundness” of their business, he said.

Mergers would help boost the efficiency of business operations at regional banks, eventually spurring local economies, according to Gomi.

The FSA commissioner said financial regulators will push ahead with the complete abolition of the government’s refund guarantee on deposits in April, as scheduled.

“The FSA wants financial institutions to feel a sense of urgency in making efforts to boost profitability,” Gomi said.

He said major commercial banks should try to attain the target of halving the ratio of nonperforming loans to 4 percent of their outstanding loans by next April from the 2002 level.

Mizuho consolidatesMizuho Bank on Tuesday began the process of moving to one computer system from the two systems of its premerger components, Fuji Bank and Dai-Ichi Kangyo Bank.

Mizuho Bank expects the move to cut its network-related expenses by 100 billion over three years.

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