The Financial Reconstruction Commission plans to set aside as much as 15 trillion yen in government credit guarantees as a banking safety net following the planned introduction of deposit refund caps, FRC officials said Wednesday.
The FRC is planning to deposit the funds into an account with the Deposit Insurance Corp. The account, to be created in April, will provide funds that can be used for fresh capital injections into ailing banks or to assist the transfer of operations from collapsed financial firms to healthy ones.
The FRC, a governmental banking regulatory body, reported the plan Wednesday to the ruling Liberal Democratic Party's Investigation Committee for the Finance and Banking Systems, the officials said.
The plan is an exceptional measure to help major banks and large regional banks fully refund deposits in the event of a financial collapse. The scheme would apply even after the introduction of deposit guarantee caps of 10 million yen per depositor, which are to come into effect in April 2002.
Many observers believe the introduction of the caps will lead to a flight of funds away from relatively weak banks.
At the moment, the government guarantees that all deposits will be refunded through the DIC in the event that the financial institution holding them collapses.
Commission officials said the 15 trillion yen would enable the government to deal appropriately with a crisis as grave as one that would require the nation's top 15 banks to be recapitalized.
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