BOJ eyes accepting subordinated debts to assist corporate finance+

TOKYO, March 17 Kyodo - The Bank of Japan said Tuesday it will consider taking subordinated loans and subordinated bonds worth up to 1 trillion yen issued by commercial banks in an unusual emergency step to encourage them to lend more money to businesses amid the economic downturn.

Banks can count subordinated debts as part of their supplementary capital
because these instruments are given lower repayment priority than other forms
of debt in exchange for higher borrowing rates. By including them as part of
their capital, banks are expected to find more room for extending loans to
businesses.
The central bank has been under pressure to take further steps to stem the
fallout of the global financial crisis as there is little room for adjusting
conventional monetary policy with its key interest rate at a rock-bottom 0.1
percent.
Calling the step as ''an extremely extraordinary measure,'' BOJ Governor
Masaaki Shirakawa said at a press conference that the central bank wants
commercial banks to strive to strengthen their capital bases by using the
subordinated loan scheme.
Shirakawa said although it is logical move for individual banks to restrain
their lending in consideration of their capital bases, if all of them take such
a move, there will be a ''strong'' adverse impact on the economy.
''(The BOJ) is concerned that negative multiple interactions may work between
finance and the real economy,'' he said.
The central bank will study the details of the debt purchase scheme, including
capping the upper limit of undertaking subordinate debts per financial
institution.
The announcement came as the BOJ started a two-day policy-setting meeting
through Wednesday.
The central bank made the decision at a meeting of its Policy Board. It is
different from the ongoing policymaking gathering as the latter includes
government representatives albeit without voting rights.
Expressing worries over the deteriorated global economy, the BOJ said in a
statement it decided to consider the additional emergency move as commercial
banks may tighten their lending further on fears over a possible drop in the
stock market.
With the highly unusual move to underwrite subordinated debts, the central bank
will supplement the government's efforts to secure the financial system through
the injection of public funds into banks.
The injection of public money into banks became available following a legal
amendment late last year to facilitate the financing of small and midsize
companies.
But so far only three second-tier regional banks have applied for the public
funds as many others are wary of undermining their management independence.