The Financial Services Agency this month worked out a detailed plan to set up a quasi-public body to purchase surplus shares unloaded by private banks. A related bill is expected to reach the Diet floor perhaps during an extraordinary session that opens this autumn. The problem is that the plan is designed to help to prop up the stock market by an artificial means.

What is in the works looks very much like the "price-keeping operation" that has been carried out often since the 1990s. The latest "PKO" plan was floated in April during the administration of former Prime Minister Yoshiro Mori. It was later incorporated in an economic stimulus package put together by that administration, though it was not put into action.

The plan is a deliberate attempt to bypass the market rules, as were previous PKO measures. In particular, it runs counter to the spirit of structural reform being advocated by Prime Minister Junichiro Koizumi, who emphasizes the importance of "letting the private sector do what it can." The Koizumi administration owes the public a credible explanation of why it wants to set up a stock-purchasing entity.

Bank-held shares have received a lot of attention lately in connection with the "mark-to-market" international accounting rules that will be used beginning in the midyear settlement period ending Sept. 30, 2001. With the stock market in the doldrums, the change from book-value to market-value accounting means that unrealized holding losses will show in the books, hurting banks' financial standing.

The government and the ruling parties fear that if banks dump their huge holdings to avoid reporting losses, the selloffs will send the stock market into a tailspin and further depress the flagging economy. It is essentially this fear of a market meltdown that lies at the heart of the stock purchase plan.

The planned organization, tentatively called the "Bank Share Acquisition Corporation," will have an initial capital of 10 billion yen, which will be contributed by member banks. In addition, every time a bank sells shares to the corporation, it will chip in 8 percent of the sales value. These contributions will be used if the institution suffers losses on some of the shares it has purchased. But if further losses are incurred in excess of the corporation's ability to pay, taxpayers will have to pick up the tab.

Banks large and small hold surplus shares worth an estimated 13 trillion yen to 14 trillion yen. They must release these cross-held shares because new FSA regulations limit banks' shareholdings to not more than 100 percent of their equity capital. In fiscal 2000, banks already sold 3 trillion yen worth of shares. If they continue to sell at this rate, they will be able to clear their excess holdings in four or five years. That will depress stock prices, but perhaps not to the extent that triggers a market crash. On the other hand, government intervention will create serious distortions in the market.

The government apparently has not learned enough from its unsuccessful PKO efforts in the 1990s, when massive funds were funneled into the stock market from the postal savings and insurance systems. Those interventions, carried out for the sole purpose of shoring up a sagging market, distorted the normal mechanisms of price formation and hampered the development of a sound market in which small investors also play an active role.

The lesson is obvious: Artificial efforts to lift stock prices do not succeed. While there are legitimate reasons to limit bank shareholdings, such as dissolving the outdated system of mutual shareholdings, there is no convincing reason to create a stock-purchasing organization, given its potentially negative nature. What the government is trying to do is to cure the market's short-term ills at the expense of its long-term health.

In addition to buying unwanted shares held by banks, the government is planning to use public funds, if necessary, to make up secondary losses that will result if shares purchased drop further in value. It is also considering special tax breaks for the banks that sell shares. These measures, as well as stock purchases, would give them too much protection.

Banks have already received considerable public assistance in their efforts to write off bad loans. Still struggling to clean up the mess, they may yet receive another infusion of government money. Reviving the banking sector is a pressing priority, but it is doubtful whether the public will continue to support such generous bailouts.

The FSA has compelling reasons to get the banks back in shape. Of course the so-called convoy system -- under which the ministry protected virtually all banks -- is a thing of the past. But the stock-buying scheme is a reminder that old habits die hard.