South China Morning Post - 09/17/98
BLOOMBERG in Tokyo
Japan's ruling Liberal Democratic Party proposed nationalising troubled banks in a concession that may pave the way to parliamentary approval of a bailout plan for the nation's debt-burdened banking system.
In a compromise proposal made to opposition leaders, the party proposed creation of a body similar to the US Resolution Trust to take over problem loans, according to an LDP document.
The LDP also wants to set up an agency to oversee the industry independent of Finance Ministry control.
The party will present the proposal to opposition leaders later on Thursday.
An agreement would allow Prime Minister Keizo Obuchi to show United States President Bill Clinton at a meeting next week in New York that Japan is taking steps to lead Asia out of its economic crisis.
The proposal calls for maintaining a 17 trillion yen government fund established in February to protect deposits.
The Government also established a 13 trillion yen fund in February to boost capital at financial troubled banks. The opposition had demanded that fund be scrapped.
The Government ''will study measures to increase bank's capital and restore the banking system'', the document said.
''I hope we can reach agreement when Prime Minister Obuchi meets with the opposition leaders later today,'' said Finance Minister Kiichi Miyazawa after a meeting with Mr Obuchi earlier on Thursday.
The LDP had hoped to pass the banking legislation in the lower house before Mr Obuchi leaves for the US.
Any delay adds to the cost of the eventual bank clean-up and increases the chances Japan's recession will deepen, the US rating company Standard & Poor's said yesterday as it revised its outlook for four Japanese Banks to negative from stable.
''Despite the severity of the banking industry's problems, the Japanese Government has not shown strong leadership in managing the problems and restoring market confidence,'' Standard & Poor's said in its report.
US Trade Representative Charlene Barshefsky called on Japan to act quickly to boost its economy, repair ailing banks and deregulate industry.
''It takes more than pumping money into the economy,'' she said. ''Fiscal stimulus and banking reform must go hand in hand with deregulation.''
''Delay in carrying out these steps has an extraordinary cost for Japan, the US and the World,'' she said in a speech at the Japan National Press Club.
The Liberal Democrats had sought a compromise with the opposition to allow a ''soft-landing'' for major banks in financial trouble.
Japan's three biggest opposition parties had stalled debate on the legislation, objecting to the use of public money to bail out banks.
Earlier reports that the LDP would bow to opposition demands pushed the benchmark Japanese government bond yield to a record low 0.665 per cent.
LTCB shares, which fell 34 per cent yesterday, dropped 12 per cent, or 3 yen, to 22 today and topped the most-actives list with 50.2 million shares traded.
''Long-Term Credit Bank may turn out to be a bank failure after all,'' said Naomi Hasegawa, a senior economist at Tokyo-Mitsubishi Securities.
The Government's handling of LTCB, one of three long-term lenders that helped fund Japan's postwar ''economic miracle,'' may serve as a model for dealing with other major institutions.
The Government wants to merge the bank with smaller, healthier Sumitomo Trust& Banking, which said that LTCB's problem loans must be cleaned up before it agrees to a takeover.
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