2. |
Framework of resolution methods |
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(1) |
Basic principles |
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- Aim at a "small" deposit insurance system
(Under the current special measures, all deposits and liabilities are protected)
- Non-viable financial institutions should be resolved at an early stage
- Give preference to the financial assistance method when an assuming
institution is found
- Financial functions of a failed financial institution are to be transferred
to the assuming institution
- Paying off depositors (the payoff method) should be avoided as much as
possible
Note: Both the financial assistance method and the payoff method involve a
haircut of deposits
- Expedite resolution processes and provide various resolution methods
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(2) |
Accelerating transfer of business with financial assistance
It is important to transfer the financial functions of the failed financial
institution promptly to an assuming institution, in order to minimize the
negative impact on the depositors, the economy as a whole, and the financial
system, caused by the failure. |
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- Prior preparation (-includes grouping of deposits held by the same person)
- Develop an interface enabling smooth transfer of financial institution's data
on depositors to the Deposit Insurance Corporation (DIC)
- Enlarging the scope for DIC where financial assistance is allowed
- Allow financial assistance when a portion of business (e.g. performing assets
and insured deposits) is transferred, etc.
- Expedition and simplification of procedures to transfer business
- Introduce systems for management by public administrators and court
subrogation authorization for business transfer
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(3) |
Preservation of financial function (-measures to be taken when transfer
of business takes time)
Even when prior preparation is incomplete, it is important to preserve
certain financial function of the failed institution. |
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- Ensuring depositors' convenience
- DIC should be authorized to make advance payments
- Failed financial institutions should be allowed to repay deposits up to the
insured amount
- DIC should be empowered to purchase deposits and other liabilities, as for
the portion of deposits exceeding the insured amount
- Protection of liquid deposits
Liquid deposits should be protected by some temporary special measures in
order to avoid a disruptive impact on the economy as a whole and the financial
system through interruption of payments, until the speedy resolution methods are
well established and a variety of private payment services are innovated. In
this case, however, measures to prevent moral hazard such as charging higher
insurance premium for liquid deposits are necessary.
- Protection of borrowers
- Financial institutions under judicial proceedings should be able to make
loans, and additional measures from the government and local governments are
required
- A change in the covenant (of off-setting) of loan is desirable
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(4) |
Measures concerning assuming financial institution |
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- Development of an environment which encourages financial institutions to
assume business of failed institutions
- Introduction of loss-sharing (profit-sharing) scheme, capital enhancement of
assuming institutions
- Measures applicable to cases when no assuming institution is found
- Bridge bank scheme, and continuation of the function of the Resolution and
Collection Corporation (RCC) as an assuming institution
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4. |
Other issues concerning the deposit insurance
system |
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(1) |
Insured deposits - including the followings is appropriate |
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- Bank debentures (limited to those for personal saving and are non-negotiable)
- Deposits of public funds and deposits of corporations established under
special laws
- Interests on deposits
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(2) |
Insured financial institutions |
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- Federations of cooperative financial institutions should be included
- Further study of whether to include branches of foreign banks (and the ways
of inspection and supervision) is necessary
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(3) |
Insurance limit and advance payments |
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- Insurance limit: maintain the current level (10 million yen per depositor)
- Advance payment: significantly raise the current level (0.2 million yen per
depositor)
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(4) |
Purchase of deposits and other liabilities by the DIC |
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- At present, the DIC is authorized to purchase only insured deposits and
liabilities. This DIC's purchasing authority should be widened to some uninsured
deposits and liabilities with certain conditions, including a requirement that
the claims and creditors are clearly identifiable.
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(5) |
Insurance premium |
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- Insurance premium after the termination of special measures is to be studied,
referring to the present level, from the viewpoint of repaying DIC's borrowings
promptly
- The framework of risk-based premiums (rates determined in light of the
financial conditions of individual insured institutions) should be studied at an
early opportunity, but the application of the framework is not feasible at this
juncture
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5. |
Environment to be developed before the
termination of special measures |
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(1) |
Disclosure by financial institutions |
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- Disclose non-performing assets according to standards equivalent to the ones
set by Securities and Exchange Commission of the United States (from accounting
period ending March 1998)
- Legally required to disclose, on a consolidated basis, specific matters
concerning their businesses and properties which are stipulated in laws and
regulations, with possible penalties (from accounting period ending March 1999)
- Disclose the outcome of the self-evaluation of assets following the Financial
Revitalization Law (for all financial institutions from accounting period ending
March 2000)
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(2) |
Financial system stability - before the end of March 2001 |
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- Make continued efforts to ensure financial system stability
- Utilize the legal framework of the Financial Revitalization Law and the
Financial Function Early Strengthening Law and other available means
- Individual financial institutions should strengthen competitive financial and
management bases
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(3) |
Others |
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- Public relations on the Deposit Insurance System
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[Financial
System]