Recent Banking Sector Reforms in Japan

[...]Diet discussions produced two significant piecesof legislation: the Law Concerning Emergency Measuresfor the Reconstruction of the Functions of the FinancialSystem, and the Financial Function Early Restoration Law.An outline of these laws is shown in Figure 1. The LawConcerning Emergency Measures for the Reconstruction ofthe Functions of the Financial System (commonly referredto as the Financial Reconstruction Law) is a useful frameworkwithin which the authorities can deal with a failedbank without necessarily finding a sound receiving bank beforehand. LTCB was nationalized under the FinancialReconstruction Law. Under the framework, everything,including loss coverage and daily funding of a nationalizedbank, is covered by the Deposit Insurance Corporation (DIC)in order to maintain the franchise value of the bank and toclean up its balance sheet. Throughout the temporarynationalization, until a sound receiving financial institutionis found, the bank continues to provide its financialservices while fully meeting its liabilities.[...]