Govt eyes restart of bank-held share buys
Written by Writer on Sunday, October 26th, 2008
Govt eyes restart of bank-held share buys
The Yomiuri Shimbun
As global stock prices continue to nose-dive, the government began discussions Saturday on restarting purchases of shares held by banks by the Banks’ Shareholdings Purchase Corporation, an organization consisting of financial institutions in the private sector, government officials said.
The measure is aimed at easing the pressure of falling share prices by making the BSPC directly purchase shares from banks and other financial institutions.
The government also is planning to tell the Bank of Japan to restart purchases of such shares as a measure to stabilize the stock market.
The BSPC was established in 2002 as a receptacle for financial institutions to sell their shares to reduce cross-shareholding among companies. It was aimed at preventing share prices from falling by avoiding coordinated mass sales of shares.
From 2002 to 2006, the BSPC and Bank of Japan purchased about 3.6 trillion yen worth of shares. Beginning in 2006, after share prices started recovering, they gradually sold the shares while watching trends of stock prices.
As of the end of fiscal 2007, the BSPC held nearly 2 trillion yen in shares.
On Oct. 14, the government presented measures to stabilize the financial market, focusing on a temporary freeze on the sale of shares held by the government, tighter controls on short selling of shares and easing of restrictions on own share purchases.
On Friday, however, the Nikkei Stock Average plunged to 7,649.08, approaching its lowest level since the end of the bubble economy, and the government judged additional measures were needed.
If the BSPC is to actually restart share purchases, then it will be necessary to amend related laws.
Particularly of concern this time is that with plummeting share prices, unrealized losses on shares held by the six major domestic bank groups have grown to more than 1 trillion yen, and that the banks will be forced to dispose of the losses if stock prices remain low. If the losses grow further, then the banks’ capital adequacy ratio–an indicator of their soundness–will suffer and may ultimately lead to reluctance among banks to lend money to companies and others.
By proceeding with purchases of bank-held shares, the government hopes to prevent the banks’ financial deterioration and avoid a scenario in which they are reluctant to lend money.
The government also will discuss adding more money to the 2 trillion yen of public funds that was contained in a proposed bill to amend a law for stabilizing financial institutions. By enlarging the scope for injecting public funds to financial institutions as a preventive measure, the government will attempt to eliminate concerns in the market.
(Oct. 26, 2008)
