Summary Excerpts from the Government's Economic Measures

This is a provisional translation of summary excerpts from the government's economic measures on related issues to the Financial Services Agency, prepared by the FSA. The full version of the English translation will be published through the Cabinet Office within a few days.

---

Provisional and unofficial summary

Summary Excerpts from the Government's Economic Measures

1. Revitalization of the financial and corporate sectors

(1)	Integrated resolution of the problems of non-performing loans of banks and excessive corporate debt
	[1] Drastic removal of non-performing loans from the banks' balance sheets   1) Principles The major banks are to proceed with the removal of non-performing loans from their balance sheets according to the following principles The major banks will take measures to remove NPLs already classified as ''in danger of bankruptcy'' and below from the banks' balance sheets within the next 2 fiscal years. They will also take measures to remove NPLs newly classified as such within 3 fiscal years after such classification. The above principles will take effect from the business year starting this April 1. 2) Disclosure of the actual record of removals of NPLs by banks and monitoring by the authorities The major banks are urged to periodically disclose the actual record of the removal of NPLs from their balance sheets. The FSA will conduct a follow-up survey of its progress. 3) Policy stance of the authorities towards the banks subject to capital injection. Based on the importance of enhancing the removal of NPLs from the banks' balance sheets, clarify the authorities' policy stance with regard to the implementation standards for administrative measures to be taken under the Financial Function Early Strengthening Law and the guidelines of the Financial reconstruction Commission when the banks' actual profits fall below their planned levels by 30% or more (the so-called 30 percent rule). 4) The loans to debtors classified as ''need attention'', and prevention the accrual of new NPLs Require banks to develop schemes for improving the quality of loans to debtors classified as ''need attention'', and to prevent the accrual of new NPLs. [2] Promoting corporate reorganization   1) Establishment of principles (Guidelines) regarding the reorganization of companies in financial difficulty and principles for debt forgiveness accompanying the reorganization process Guidelines will be established regarding the process of corporate reorganization and debt forgiveness through private- sector consultations in which the authorities participate. 2) Effective use of the Law on Special Measures for Industrial Revitalization Provide support to enterprises in restructuring their businesses through effective use of the Law on Special Measures for Industrial Revitalization, with a clarification of the approval criteria for the Business Restructuring Plan including debt forgiveness by banks. 3) Encouragement of reorganization of the construction sector Create a favorable environment for encouraging reorganization of the construction sector. 4) Effective use of new legislation on facilitating the splitting of corporations As new legislation has entered into force with regard to the splitting of corporations, those concerned in the private sector are urged to effectively use this new legislation. 5) Improvement of the Corporate Reorganization Law and the Civil Reorganization Law Amend the Corporate Reorganization Law to make it more user-friendly in the Diet Session next year, and, where necessary, amend the Civil Reorganization Law based on further experience in implementation by around FY2003. [3] Enhancement of debt forgiveness by financial institutions   1) Enhance loans to enterprises in the process of developing reconstruction plans (Debtor-in-possession (DIP) finance) Request private financial institutions to pay full attention to enhancing DIP finance, and promote active use of the lending schemes set up by the Development Bank of Japan financial institutions, and explore measures to facilitate DIP finance to small- and medium-sized enterprises (SMEs). 2) Effective use of debt-equity swaps Clarify implementation standards for the so-called ''5% rule'' limiting the shareholdings of banks with regard to shares acquired through debt-equity swaps, as well as explore schemes to facilitate the sales of such equity. 3) The role of public financial institutions Explore appropriate measures to be taken by public financial institutions in the event of debt forgiveness by banks, taking due account of the burden on the public, and ensuring a fair process of reconstruction in accordance with the Guidelines (mentioned in [2]1) above). 4) Harmonious tax treatment Take prompt and harmonious measures in taxation such as establishing a scheme for responding to tax inquiries, and considering the tax treatment of banks granting debt forgiveness based on the Guidelines. 5) Clarification of the description in the Financial Inspection Manuals Consider measures required to clarify the treatment of certain loans for the facilitation of restructuring (e.g. banks' classification of DIP finance loans, etc.). [4] Sales of loan assets   1) Promotion of a further effective use of the Resolution and Collection Corporation (RCC) Enhance the functions of the RCC to include trustee business etc. for NPLs of private financial institutions. (Also extend the duration of the RCC's NPL-purchasing scheme for viable banks.) 2) Standardization of contracts and transaction procedures for the trading of loans Request the Japan Syndication and Loan-Trading Association (JSLA) to reach an early conclusion to its study on this topic. Promote the standardization of data on loan sales. 3) Enlargement of the business scope of debt collection companies (servicers) Facilitate debt collection by enlarging the business scope of servicers. [5] Others   1) Measures for SMEs Activate appropriate financial measures to prevent systemic failures of SMEs which are counterparties to debtors of NPLs and agressively assist their positive efforts to strengthen their businesses. 2) Encouragement of project financing Expect financial institutions to actively use lending schemes such as project financing for which the profitability of the project is critical.
(2)	Limitation on shareholdings of banks
	[1] Introduction of a limitation on shareholdings of banks As a prerequisite for purchasing shares held by banks, the amount of shares that a bank can hold is to be limited, for example, to the equivalent of the bank's capital. The portion of shareholdings that exceeds this limit must be disposed of within a certain period. [2] Outline of the Share Purchasing Scheme 1) As a temporary measure, shares held by banks are to be purchased by the Banks' Shareholding Acquisition Corporation (BASAC, provisional name) which would be established jointly by banks, etc. Public-sector support such as a government guarantee for the funding of the share purchases of BASAC will be considered, including the involvement of the Deposit Insurance Corporation of Japan. 2) Shares are to be purchased from banks. 3) Shares are to be purchased at market value, and the names to be purchased are to be decided on the basis of specific rules taking into consideration the composition of listed investment trusts. 4) For the sale of shares acquired by the BASAC, exchange-traded investment trust funds (ETFs), investment trusts, and defined contribution pension funds will be effectively used. [3] Work Plan A concrete plan to establish the system and to operate the scheme mentioned above will be determined, and a detailed final plan including the legal support required will be developed as soon as possible.

2. Structural Reform in the Securities Markets

(1)	Deregulation of treasury stocks and the removal of the net-asset requirement per investment unit in shares Building on a movement in the current Diet Session to amend the laws, the following issues are to be studied as necessary: Remove current restrictions on the purpose of share acquisition by the issuing companies themselves, and allow the acquisition of own-shares by the issuing companies (so-called ''treasury stock'') under certain conditions. This will be accompanied by revisions to the rules prohibiting insider trading, and the establishment of additional rules for the prevention of price manipulation. Measures to ensure disclosure in the acquisition and sales of own-shares will be taken, and the capacity of the Securities and Exchange Surveillance Commission will be strengthened. Remove the current restriction on the unit of investment in shares and allow for a flexible setting of the unit, enabling individual investors to invest small sums in shares.
(2)	Defined Contribution Pension Schemes and Defined Benefit Pension Schemes (Details to be provided by the Ministry of Welfare and Labor)
(3)	Improvement in Securities Settlement Systems To enable paperless trading of securities, and to shorten the settlement period, required legislation will be prepared to create a book entry system for corporate bonds, commercial paper, and government bonds etc.
(4)	Introduction of an ETF linked to stock price indexes and based on investment in kind of shares By introducing such funds based on investment in kind, promote the creation of a system of ETFs which should contribute to market activity by enabling convenient and prompt investments in small amounts.