Tuesday, October 08, 2002

Japan to delay limits on bank deposits

Firms get two years for flexibility

The Associated Press

        TOKYO - Prime Minister Junichiro Koizumi said Monday that his government will delay putting a limit on the guarantee for bank deposits for another two years so Japanese bankers can have more financial flexibility as they tackle bad loan disposals.

        The government had planned to put a 10 million yen ($80,645) limit on the deposit guarantee for each account beginning April 1.

        Now there is no limit on guarantees on individual deposits. But concerns that the cap could spur a run on deposits because of worries about the health of Japanese banks apparently prompted his decision to postpone the step.

        Mr. Koizumi denied the move was a reversal of policy. He said it is aimed at achieving reform of the financial system by giving banks a window to dispose of bad loans.

        “We have decided to postpone the implementation (of the cap) by two years as part of economic reforms,” Mr. Koizumi said after meeting with members his Council on Economic and Fiscal Policy. “It is to speed up bad loan disposals and put the reform on the right track. We want to avoid any unnecessary confusions in the process of economic reconstruction.”

        Tokyo stocks started falling to new 19-year lows on fears that Mr. Koizumi's administration will start cracking down on Japan's banks, forcing them to tackle their massive bad loans estimated by the government at 43 trillion yen ($347 billion) and hinting at an injection of public money to wipe out the problem.

        Although many analysts say the debt cleanup is needed, the decision is also likely to send troubled companies into bankruptcy, sapping strength out of an already weakened economy.

        Monday, the benchmark 225-issue Nikkei Stock Average closed down 339.55 points, or 3.76 percent, at 8668.00 points, its lowest close since the June 16, 1983, finish at 8645.33.


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