Frequently Asked Questions - Banks and Other Financial Institutions

Banks' shareholdings restriction and Banks' Shareholdings Purchase Corporation
Q7   The ''Banks' Shareholdings Purchase Corporation (BSPC)'' was established to purchase shares sold by banks in accordance with the introduction of the banks' shareholding restriction. What is the objective of this corporation? Would it not distort market principles?

In financial accounting, the changes in the shares held by a company is to be reflected on the shareholders' equity section in the balance sheet after being valued at market prices except for those held by subsidiaries or affiliates. Japanese banks hold significant amount of shares in the cross-shareholding structure, and therefore if the share values fall, the capital adequacy reduces and it might harm the health of their financial situations. This might give adverse affect to the credibility of the banks and the stability of the financial system. In order to solve such problem in shareholding of banks, the ''Law concerning Restriction, etc. of Banks' Shareholding etc.'' (hereinafter referred to as the ''Shareholdings Restriction Law'') was enacted at the extraordinary Diet Session in 2001, which imposes shareholding restriction.

In accordance with the introduction of this law, banks need to dispose large amount of shares. However, if large amount of shares are released into the market at one time, it would affect the share values and it might give negative effect not only to the stock market but to the stability of the financial system and the entire economy as well. In order to alleviate such effect, the BSPC was established on January 30, 2002 based on the Shareholdings Restriction Law as the safety net to support the sales of shares at the market through purchasing the shares held by banks in order to facilitate disposal of shares.

Even after establishment of the BSPC, banks can sell their shares at the market as before. The BSPC purchases shares from banks and sells them both at market values. Therefore, we consider the BSPC do not distort the market principles.

The Shareholdings Restriction Law was amended at an extraordinary Diet session in 2002, and the BSPC may now purchase bank shares held by other business corporations (since January 2003).

For more details, please access the following:
*     ''Approval of the Establishment of Banks' Shareholdings Purchase Corporation'' (January 29, 2002)
*     ''Establishment of the Banks' Shareholding Acquisition Corporation (provisional name) (June 26, 2001)