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Establishment of "Principal Terms and Conditions for Complementary Lending Facility"

February 28, 2001
Bank of Japan

At the Monetary Policy Meeting held today, the Policy Board of the Bank of Japan decided on the following measures.

The decision stated in 1 was made in accordance with "Improvements in the Way of Liquidity Provision and Reduction in the Official Discount Rate", which was decided at the Monetary Policy Meeting held on February 9, 2001 and immediately announced.

The decisions stated in 2, 3 and 4 were intended, in line with "Establishment of 'Guidelines on Eligible Collateral' " decided on October 13, 2000, to abolish or suspend lending facilities which had been losing significance in the conduct of monetary policy.

The decision stated in 5 was aimed at effecting the decisions stated in 1, 2 and 3.

1. The Establishment of Complementary Lending Facility

  1. (1) The Bank shall establish "Principal Terms and Conditions for Complementary Lending Facility" (Principal Terms and Conditions) as shown in Attachment 1.
  2. (2) The Governor of the Bank shall have the authority to set the maximum number of days stipulated in the proviso of paragraph 5. (2) in Principal Terms and Conditions and to make exceptions stipulated in paragraph 9.

2. Abolishment of Import Bills Refinancing Facility

  1. (1) The Bank shall abolish Import Bills Refinancing Facility at the end of June 2001.
  2. (2) Even after July 2001, loans extended through Import Bills Refinancing Facility by the end of June 2001 and expected to mature beyond July 2001 shall be dealt with as before.

3. Suspension of Discounting Commercial Bills

  1. (1) The Bank shall suspend discounting commercial bills at the end of June 2001.
  2. (2) Even after July 2001, commercial bills discounted by the end of June 2001 and expected to mature beyond July 2001 shall be dealt with as before.

4. Abolishment of Lending Facility at a Non-Basic Loan Rate

The Bank shall abolish Lending Facility at a Non-Basic Loan Rate today.

5. Amendments to "Rules on Organization of the Bank of Japan"

"Rules on Organization of the Bank of Japan" decided on March 24, 1998 shall be amended as shown in Attachment 2.

Attachment 1

Principal Terms and Conditions for Complementary Lending Facility

1. Purpose

With a view to facilitating monetary operations and thus ensuring the smooth functioning and stability of financial markets,these terms and conditions prescribe the fundamental matters concerning a standby lending facility through which the Bank extends loans at the requests of counterparties with the conditions pre-specified by the Bank.

2. Counterparties

  1. (1) Counterparties should satisfy all the eligibility criteria as below.
    1. (a) To be either financial institutions (financial institutions as defined in Paragraph 1, Article 37 of the Bank of Japan Law, Law No.89 of 1997, excluding the Resolution and Collection Corporation and the Kii Deposits Management Bank), securities companies (securities companies as defined in Clause 2, Paragraph 1, Article 10 of the Ordinance concerning the Bank of Japan Law and foreign securities companies as defined in Clause 4 in the same paragraph), securities finance companies (securities finance companies as defined in Clause 3 in the same paragraph) or tanshi money market dealers (those as defined in Clause 5 in the same paragraph)
    2. (b) To have concluded loans-on-bills agreements with the Bank
    3. (c) To be deemed sufficiently creditworthy in light of their capital condition and other relevant information obtained through the Bank's on-site examinations and so forth.
  2. (2) Counterparties should apply for access to the facility and be approved in advance as eligible counterparties by the Bank. In principle, the Bank shall conduct an annual review of these approvals.

3. Location of Operations

  1. (1) The Bank's head office (Operations Department) or its branches.
  2. (2) Each counterparty should specify in advance one business office as the place of operations among the Bank's head office (Operations Department) and its branches.

4. Maturity

Overnight.

5. Loan Rate

  1. (1) The interest rate applied shall be the basic loan rate; provided that a higher rate of the basic loan rate plus 2% shall be applied to counterparties who have used, on a cumulative-business-day basis, the facility longer than the maximum number of days stipulated in (2) during one reserve maintenance period (one month as defined in Paragraph 3, Article 7 of the Law Concerning Reserve Deposit Requirement System,Law No.135 of 1957).
  2. (2) The maximum number of days on which counterparties can use the facility at the basic loan rate is 5; provided that when deemed necessary for monetary operations, the Bank can raise the maximum number of days higher than 5, although not exceeding half the number of business days during that reserve maintenance period.In this case, the Bank shall announce this higher maximum number of days in an appropriate manner.

6. Amount of Loans

Amounts of loans shall be decided in accordance with the request by counterparties; provided that those amounts shall not exceed the value of collateral submitted by counterparties to the Bank pursuant to paragraph 7 .

7. Collateral

  1. (1) Counterparties shall submit in advance eligible collateral to the Bank.
  2. (2) The management of collateral shall conform to "Guidelines on Eligible Collateral" (Policy Board Decision on October 13, 2000, Attachment 1).

8. Access to the Facility

  1. (1) The Bank shall extend loans at the requests of counterparties.
  2. (2) Loans shall be provided in the form of lending on bills.

9. Exception

When the Bank specifically deems it necessary for smooth monetary operations, it can make exceptions to the terms and conditions stipulated in paragraphs 2, 3, 6, or 8, such as setting the limits on the amounts of loans or rejecting the requests for loans.

(Supplementary Provisions)

  1. (1) These terms and conditions shall become effective on March 16, 2001; provided that the approvals of counterparties stipulated in paragraph 2 (2) can be conducted before March 15, 2001.
  2. (2) The first review of the approvals of counterparties stipulated in paragraph 2 (2) shall be conducted around August 2001.
  3. (3) Notwithstanding paragraph 7(1), collateral to be submitted for this facility by the counterparties shall be restricted, for the time being, to those deemed appropriate for the Bank's business operations.

Attachment 2

Amendments to "Rules on Organization of the Bank of Japan"

  • Clause 1, Article 13 shall be amended as below.
    1 Deciding on conducting monetary operations (excluding business belonging to other departments)
  • Clause 3, Article 16 shall be amended as below.
    3 Deciding on specific matters in discounting bills and extending loans for the purpose of contributing to the maintenance of an orderly financial system, and executing business related to these matters

(Supplementary Provisions)

  1. (1) These amendments shall be effective on February 28, 2001.
  2. (2) Notwithstanding paragraph (1) above, the Financial Markets Department shall make decisions on specific matters in discounting commercial bills and extending loans under Import Bills Refinancing Facility, and execute business related to these matters.