Japan to Enhance Oversight of Local Banks Backed by Public Funds

Tokyo, Dec. 5 (Jiji Press)–The Japanese government plans to strengthen the oversight of regional lenders that have received public funds, or taxpayer money, to improve their financial standings. The Financial System Council, which advises the prime minister, broadly approved at a working group meeting Thursday a draft of a report on measures to reinforce the functions of regional financial institutions. The planned strengthening of the monitoring of regional banks recapitalized with public funds reflects a scandal at Iwaki Shinkumi Bank in the city of Iwaki, Fukushima Prefecture, northeastern Japan. The lender was found to have provided funds to antisocial forces. Iwaki Shinkumi received 20 billion yen in public funds in 2012, after the March 2011 powerful earthquake and tsunami, which mainly struck the Tohoku northeastern region, including Fukushima. Meanwhile, the government will increase grants provided for mergers of local banks, in order to support the realignment of the regional banking industry. Based on the draft report, the Financial Services Agency will compile by year-end a new plan to strengthen regional financial organizations, aiming to submit legislation to revise laws including the act to fortify local lenders’ financial functions to next year’s ordinary session of the Diet, the country’s parliament. Apparently referring to the scandal at Iwaki Shinkumi, the draft report says that extremely inappropriate acts going against the purpose of the public fund injection system had been conducted. The deadline for applying for public fund injection, currently set at the end of March 2026, will be extended. Prior screening by a panel of experts will become mandatory when regional shinkin and shinkumi banks receive public funds, the same requirement as that for ordinary banks. The financial conditions of shinkin and shinkumi banks that seek support with taxpayer money will be monitored by the industries’ central organizations, including Shinkin Central Bank, which work with the central government to pump public funds into the recipient institutions. The draft report calls for expanding the grant system that helps cover the initial costs of business integration, including outright mergers. Specifically, the cap on the aid will be raised from the current 3 billion yen. The amount of grants will be increased for business integration plans involving a financial institution that was ordered to increase its capital as well as for integration deals across sectors. The existing “early warning system” to prevent the deterioration of regional financial institutions’ financial conditions will be overhauled. Risks such as population falls and interest rate rises will be used as new criteria so that regulatory authorities can urge regional financial institutions swiftly to improve their financial profiles. END [Copyright The Jiji Press, Ltd.]