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Thursday, Oct. 7, 1999

Cabinet Interview: FRC chief favors safe approach


Staff writer

Michio Ochi won the post of Financial Reconstruction Commission chairman for his expertise in financial affairs, which is said to be unparalleled among other politicians. But his philosophy on banking industry reform may differ from the aggressive reformist policies pursued by predecessor Hakuo Yanagisawa.

A veteran Liberal Democratic Party lawmaker, the 70-year-old Ochi has served as chief of the Economic Planning Agency twice. He was also a key member of an LDP panel that pushed financial revitalization legislation through the Diet last fall. The laws paved the way for the creation of the commission he now heads.

Because of this background, Ochi is likely to stay loyal to the FRC's basic platform of revitalizing the financial sector.

But his recent comments suggest he might actually be in favor of the status quo -- in stark contrast to Yanagisawa, some analysts say.

"I don't think we should be saying, 'I will pour taxpayer money into your bank as a reward (if you merge),'" Ochi said in an interview earlier this week.

As the FRC's first chairman, Yanagisawa pressured banks to merge and consolidate, using capital funds injections as leverage. During his 10-month reign, the former Finance Ministry bureaucrat handled a number of tasks, including the nationalization of two major banks, capital injections of public money into 15 major banks and the collapse of five regional banks.

He capped his accomplishments last week by selecting Ripplewood Holdings as the buyer of the Long-Term Credit Bank of Japan, which went under a year ago and is now nationalized.

Ochi, also from the Finance Ministry but with greater seniority in the LDP than Yanagisawa, gave a less enthusiastic response to the LTCB deal.

"I can't say for sure if the impact of a foreign company buying a Japanese bank will be entirely positive," he told a news conference Tuesday.

Ochi hinted that the basic framework of the LTCB sale announced by Yanagisawa could change, since negotiations have not concluded.

"We gave (Ripplewood) two months of priority negotiation rights, which means that we will not look elsewhere during that period," Ochi said. "We are negotiating with a 70 to 80 percent prospect of getting married. It's like we are still at the engagement stage, or even before engagement."

He is particularly cautious on the FRC's tentative agreement with Ripplewood to buy back LTCB loans if their value falls by 20 percent within three years.

He explained that the nation's financial system must be completely cleaned up by April 2001, when current measures protecting banks and depositors with state support expire. The buyback could spell trouble, he said, by possibly forcing the government to fork out more public money beyond the April 2001 deadline.

The loan buyback scheme, which was hatched by the negotiators as a compromise, helped lure Ripplewood into buying the LTCB. The U.S.-based investment firm had been wary of buying the LTCB loans without such an agreement for fear of seeing part of the loans unexpectedly go sour after the purchase.

Also signaling a change from the FRC's earlier stance, Ochi said that he will not require regional banks to achieve a capital-adequacy ratio of 8 percent.

The commission had been urging regional banks to accept public fund injections to bring their capital bases up to 8 percent, a mandate for internationally operating banks. The minimum capital adequacy ratio currently set for regional banks is 4 percent.

Ochi said that LTCB selloff negotiations highlighted defects in financial revitalization laws, and pointed to a need to consider creating a scheme to deal with such loan losses.

He added he will study a recent report issued by the Japan Federation of Economic Organizations (Keidanren), which called for the government to introduce the so-called loss-sharing rules.

Loss-sharing rules, which are commonly used in the United States, would allow the government and the buyer of failed banks to sort out in advance rules on burden-sharing if the banks' loans were to go bad in the future.



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