New Initiative Toward Financial System Stability

September 18, 2002
Bank of Japan

1. At a regular board meeting following the Monetary Policy Meeting today, the Policy Board of the Bank of Japan decided the following course of action to facilitate resolution of the non-performing loan problem and to secure financial system stability.
2. While Japan's non-performing loan problem basically stems from the bursting of asset price bubbles, newly generated non-performing loans have emerged as a result of aggressive restructuring efforts. In order to resolve the overall problem, a comprehensive and tenacious approach is needed, centering on a more appropriate evaluation of non-performing loans, the promotion of their early disposal, and efforts toward higher profitability on the part of both firms and financial institutions.
3. For the management of financial institutions to pursue this approach, market risk pertaining to the shareholdings of these institutions has become a significant destabilizing factor. Thus, reducing such risk is an urgent task from the viewpoint of ensuring financial system stability as well as laying the foundation for financial institutions to steadfastly deal with the non-performing loan problem.
   Based on such recognition, the Bank has decided to explore possible policy measures to enhance financial institutions' efforts to reduce their shareholdings. The Bank will endeavor to submit proposals as soon as possible.
4. In the context of the above, the Bank of Japan will conduct a comprehensive review of the non-performing loan problem and publish the result. At the same time, the Bank reiterates its intention to continue making a maximum contribution to financial system stability.