Minister to Detail Steps to Revive Japanese Banks
TOKYO -- The world is likely to find out this month just how hard Japan is willing to shake its economy to get it back on track. Banking Minister Heizo Takenaka has pledged to draw up a timetable in November for implementation of his plan to revive the nation's biggest lenders.</br></br>So far, economists have been wary in appraising the plan, saying the details aren't clear enough yet to tell whether it calls for bolder action than before to clean up bad debts. The tougher the bank measures, the harder companies will be pushed to become profitable or fold, and, so the theory goes, the faster Japan will end its slump.</br></br>One key point will be how Mr. Takenaka proposes to bring banks' loan valuations "into line with market valuations" -- a step pledged in the current bank-cleanup plan and in previous ones. Mr. Takenaka has proposed a method widely used in the U.S. for valuing loans based on the borrowers' future cash flow. Japan's banks have protested. Yet even if this method is implemented for big borrowers, as the plan urges, analysts say its effect will depend on how far into the future loan inspectors look, and what interest rates they use for their calculations.</br></br>Another question is how Mr. Takenaka's plan will "strengthen bank capital," another old pledge. Mr. Takenaka said Friday he will study an overhaul of the tax code and a possible restriction on the amount of tax credits banks can count as capital, steps long urged by rating agencies. Yet this is controversial, since after years of write-offs, big banks' capital is so depleted that a significant accounting change could wipe it out, leading to nationalization of the lenders.</br></br>If Mr. Takenaka opts for tough implementation of such steps, analysts say that some major lenders could fall under government control. The current version of the plan does mention the possibility of new legislation that would let the government inject capital into certain lenders, and it talks of a new category of "special support" financial institutions, although it doesn't say how regulators will decide which banks need support.