An advisory panel to the finance minister on Tuesday said that healthy banks should be brought in to buy failed banks after a revised deposit protection system takes effect in April 2001.
As it stands now, failed banks would be liquidated, and the government would only insure depositors' savings up to 10 million yen.
But that plan is sparking fears that depositors will shift their savings from banks viewed as weak. If such a scenario plays out, it would further undermine Japan's already fragile banking industry.