Japan Unveils Plans to Bolster Financial Crisis Response System

A Japanese regulatory panel unveiled steps to improve how the country responds to a financial crisis, by expanding potential support for securities firms, insurers and small businesses during times of turmoil.

Brokerages and insurers would be allowed to receive emergency capital from the state-run deposit insurance agency, according to a proposal from the Financial Services Agency panel released today in Tokyo. The group also recommended allowing banks to take bigger stakes in small enterprises.

Japan is seeking to bolster preparedness for financial crises after insurer American International Group Inc. was bailed out during the 2008 global market meltdown. Prime Minister Shinzo Abe is also looking for ways to support small businesses after relief on loan repayments expires in March.

“Uncertainty and instability persist in the global financial market, and it is vital for Japan to rebuild a stronger system and better protect depositors,” the panel said in the report. “More funding to small local companies and wider roles for banks to realize Japan’s economic growth are strongly required.”

Policy makers plan to compile a bill to revise financial laws based on the recommendations and send it to the Diet after a Cabinet endorsement.

Under the plan, banks, which are prohibited from holding more than a 5 percent stake in a small company, would be allowed to own as much as 15 percent for 10 years in cases where the holding would help revitalize the local economy.

Japan introduced the loan relief in December 2009 to stem bankruptcies among small businesses by helping them defer repayments to lenders. It extended the moratorium twice as the record earthquake in March 2011 weakened the economy.

Before it's here, it's on the Bloomberg Terminal.