A Japanese government panel called for a new framework that would allow even healthy banks to receive taxpayer funds to boost capital and encourage lending, in a step to guard Japan's biggest banks further against failures.
The existing framework allows Japan to offer public funds to a bank only if its failure would have a serious impact on the national or regional economies. It was used last month to transfer US$16 billion to Resona Holdings Inc after its capital fell below the regulatory minimum.
The Financial System Council, commissioned by Prime Minister Junichiro Koizumi, said a slumping economy and falling prices may prompt even healthy banks to cut lending to avoid defaults, which could further undermine the economy and public welfare.
With their capital already threat-ened by losses on bad loans and stockholdings, "there is a limit on how much money banks can raise by themselves," according to the panel's report.
The panel also suggests imposing profit targets on banks that receive money, to ensure that the new method won't be used to keep unprofitable banks in business.
The proposed framework is designed to offer aid mostly to "mega banks," said Tetsuya Katada, who headed the panel's discussions.
The government will seek legislative authorization to make the panel's proposal a law which would be effective for a limited period of time, Katada said.