Japan Moves to Shore Up Its Troubled Banking System

The Japanese government unveiled measures to bolster deposit insurance and increase disclosure in the country’s financial system, clearing the way for eventual bank failures.

Masayoshi Takemura, Japan’s finance minister, said the measures are aimed at creating a financial system where weak banks can fail without causing panic in the system and strong banks can move forward by disposing of their bad loans.

The measures also included encouraging banks to write off bad loans faster, endorsing mergers between stronger and weaker banks, and urging credit unions to turn themselves into banks, which are more closely regulated.

Takemura said taxpayer money may eventually be employed to clean up the banking mess. There are no plans to do so immediately, he said.

“I think we can overcome the problem of bad loans eventually if each financial institution aggressively deals with them using the measures we’ve presented,” Takemura said.

Japanese financial authorities have not allowed a bank to fail in almost half a century. Takemura said it may be five years before any banks fail in the current financial crisis. But for the first time, officials seemed to acknowledge that some banks may fail as the financial system moves to deal with its bad-loan problem.

Overall, however, analysts criticized the plan as failing to deal with some of the thorniest problems in the banking system and offering few concrete measures for improving the situation now.

“They’re talking about what they could do. They are not saying what they’re going to do,” said David Threadgold, an analyst with BZW Securities.