BOJ Mulls Capital Support Steps for Banks

The Bank of Japan is considering purchasing subordinated debt issued by banks to help bolster their capital, the Nikkei business daily said on Monday, in a move to contain the fallout from the global financial crisis.

Such steps would come at a time when countries around the globe are striving to shore up banks' capital and limit the impact of toxic assets, in hopes of stemming the financial crisis that has engulfed economies worldwide.

The Nikkei, citing unidentified senior BOJ officials, said the central bank has already begun compiling measures to support banks' capital and might work on details within the month.

The BOJ is considering underwriting subordinated loans and bonds for banks, the Nikkei said, adding that such a move would be highly unusual for a central bank and would likely require government guarantees to make it feasible.

A spokesman at the BOJ declined to confirm the report and said the central bank was not considering any specific course of action.

Japanese banking shares climbed after their U.S. peers rallied last week, with Japan's banking sub-index climbing 6 percent, outperforming the benchmark Nikkei 225 Average , which rose 2.3 percent.

"It's not a plan that will drive the market sharply higher, but it will prevent selling if the market starts to fall again," said Masayoshi Okamoto, head of dealing, Jujiya Securities
     
Series Of Steps

The Nikkei's report came ahead of the BOJ's two-day policy meeting that ends on Wednesday. The central bank is seen likely to keep interest rates unchanged at 0.10 percent at the meeting.

Falls in Tokyo share prices have put a strain on banks' capital adequacy ratios. The BOJ is concerned that banks' declining capital ratios, if left unchecked, could lead to a fall in lending to businesses and deal a further blow to Japan's recession-hit economy, the Nikkei said.

In an effort to reduce banks' exposure to falling stock prices, the BOJ unveiled a scheme in February to buy up to 1 trillion yen ($10.2 billion) in shares held by banks, dusting off a scheme it ran from 2002 to 2004 amid a domestic banking crisis.

The central bank has also taken various steps to help improve corporate financing, including conducting outright purchases of commercial paper and corporate bonds.

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The BOJ has, in the past, provided subordinated loans to a regional bank, but because underwriting non-collateralised subordinated bonds or loans carries risks, there is still some caution toward such steps within the central bank, the Nikkei said.

Separately, Japan's regulatory Financial Services Agency said last week it would inject 121 billion yen into three regional lenders, Sapporo Hokuyo Holdings, Minami-Nippon Bank and Fukuho Bank.

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