Provisional and unofficial summary

Establishment of the Banks' Shareholding Acquisition Corporation
(provisional name)

26 June, 2001
Financial Services Agency

As stated in the Government's Economic Measures (April 2001), ''In order to ensure the soundness of banks by limiting the price fluctuation risk arising from the shareholdings of banks within the risk management capacities of banks, it is necessary to establish a system for limiting the shareholdings of banks.'' ''Since there is a possibility that sales of shares by banks resulting from this measure may, in the short term, have an impact on supply and demand and price formation in the stock market, and have an unfavorable impact on the stability of the financial system and the economy as a whole, a temporary share acquisition scheme within a public framework will be established.'' The FSA has been working on the establishment of the Banks' Shareholding Acquisition Corporation (provisional name) based on this statement. Having received comments from various parties, the FSA has reached the following conclusions.

1. Organization and operation of the Corporation

(1) The Banks' Shareholding Acquisition Corporation (''the Corporation'') will be a corporation established by special law, with contributions from banks, etc.
(2) Members of the Corporation will be banks (including trust banks), long-term credit banks, the Norinchukin Bank, and the Shinkin Central Bank.
(3) Contributions to the Corporation will comprise initial contributions (preferred contributions) and subordinated contributions. Initial contributions (preferred contributions) will target ¥10 billion, with contributions to be shouldered by all members (phased contribution over 5 years will be permitted). This fund will in the first instance be used to cover the operational expenses of the Corporation. Any shortfall in funds to cover operational expenses will be met by additional contributions from all Members. Subordinated contributions will be funded by those Members using the facilities of the Corporation, in proportion to their use (equivalent to 8% of the value of shares sold under 2. (5) below).
(4) The management of the Corporation will in principle be conducted by directors and officers selected from the banking industry.
(5) The Government will be involved in order to, and to the extent needed to, provide public assistance.

2. Scheme for purchasing shares

(1) Sales of shares to the Corporation will be voluntary. Sales will be transacted at market value.
(2) The Corporation will purchase shares over a period of approximately five years.
(3) The Corporation will actively solicit sales of shares with the objective of constructing Exchange Traded Funds (ETFs) and investment trusts, as well as those shares linked to buyback by issuers.
(4) For those purchases made in order to construct ETFs, etc:
 
- The Corporation will seek to avoid incurring secondary losses on these transactions by minimizing the period between acquisition and subsequent resale;
- Members selling shares to the corporation will provide (interim) funding required for the purchase, for which no government guarantee will be provided;
- Profit and loss from those transactions will be booked in the general account (tentative name) of the Corporation. Any secondary losses or gains incurred will be borne or accrue to the respective member that sold the shares concerned.
(5) In other purchases of shares:
 
- While regular purchase dates of approximately once a month will be planned, in view of the Corporation's role as a provider of a safety net in these purchases, the Corporation will decide whether it will actually conduct the purchase, taking into account the need for such purchases and market developments;
- The shares to be purchased will be limited to those meeting specific requirements;
- Those purchases will be funded by borrowing from private financial institutions (Provisions will be made to provide government guarantees for such borrowings);
- The purchase limit, which will also be the limit for government guarantees, will initially be set at 2 trillion yen. This amount will be reviewed as necessary in light of the developments in the sales of shares by banks to the market and the Corporation.
- The shares held by the Corporation will be managed in trust account(s) for the corporation.
- Profits and losses from those purchases will be booked in the special account (tentative name) of the Corporation.

3. Procedure for the dissolution of the Corporation

(1) The Corporation's statutes shall be effective for a maximum of ten years, including the five-year purchasing period. In case the Corporation has disposed of all stocks acquired, the Corporation shall be dissolved without delay.
(2) When the Corporation has purchased shares under 2. (5) above, and losses remain at the time of dissolution as a result of these purchases, the Corporation shall, in the first instance, offset such losses with the subordinated contributions;
(3) If the entire amount of losses cannot be covered by the operation above, the Corporation shall offset the remaining losses with the residual balance of initial contributions (preferred contributions) at the time of dissolution. When this is not sufficient, the Government shall cover the remaining loss.
(4) In case profits are generated from purchases made under 2. (5) above, the Corporation shall, in principle, reimburse the residual balance of the initial contributions (preferred contributions) and the subordinated contributions at the time of dissolution. In addition, the Corporation shall pay out to the Members who have sold their shares under 2. (5) above, dividend not to exceed 8% of the value of shares sold under this provision.
(5) If there are still surpluses after the payment of the above dividend, the Corporation shall pay out dividends on the initial contributions up to the amount of contributions less any amount used to finance the Corporation's operations. Any remaining surpluses after this additional dividend will be paid in its entirety to the Government.

4. Other

(1) The actual scheme for the Corporation shall be decided on the basis of the scheme described above, taking into account views from interested parties.
(2) Tax measures will be considered further on the basis of the scheme described above.
(3) Necessary legislation will be submitted to the Diet for approval, and, after passage of the legislation, the Corporation shall be established following necessary preparations.