To ease regulations on share buybacks, inject capital into regional banks
By Chris Oliver, MarketWatch
HONG KONG (MarketWatch) -- Japan announced Tuesday it would loosen regulations on share buybacks and consider injecting government funds into regional banks as part of additional measures to shore up its financial markets, joining in coordinated efforts mounted by European and U.S. authorities.
Finance Minister Shoichi Nakagawa scrapped rules banning firms from purchasing more than 25% of their outstanding shares in a four-week period. As written, the rules had permitted companies to only purchase an amount equaling 25% of average trading volume.
Effective immediately, companies are able to purchase shares equal to the average daily trading volume of the preceding four weeks. The government will also scrap a rule forbidding the buying of shares within the last 30 minutes of the day's trading session.
The government will also seek to work with regional banks in an effort to strengthen their capital positions and facilitate lending to small and mid-sized companies, Nakagawa said.
A law that had expired earlier this year enabling the government to inject funds into the regional financial institutions will need to be reenacted, he said.
The government will also temporarily halt sales of state-held shareholding in domestic banks. The government and the Bank of Japan accumulated vast holdings in banks between 2002 and 2006 as part of efforts to recapitalize a banking system still suffering effects from the 1990s asset-bubble collapse.
The Bank of Japan will join the government in the sale suspension, effective freezing combined shareholdings in banks of 1.9 trillion yen ($18.6 billion).
And to support the insurance sector, the government will keep funding the Life Insurance Policyholders Protection Corp. of Japan, an institution is partly funded by industry players.
It helps provide a safety net in the event an insurer should fail. Indeed, it stepped in last week to protect policy holders of Yamato Life Insurance, which filed for bankruptcy protection with liabilities of 269 billion yen. See full story.
Pumping in liquidity
Also Tuesday, the Bank of Japan said it would maintain operations to provide ample liquidity to markets.
In a statement issued after an emergency policy meeting, the central bank said it will cut in half the base interest rate for its secure lending facility, to 0.5% from 1.0%. The move is temporary, expiring Jan. 16.
At the same time, the Bank of Japan said it will widen the range of instruments used for its market repurchase operations. Sovereign instruments accepted for repos will now also include floating-rate, inflation-indexed and 30-year-term Japan government bonds. Similarly, asset-backed commercial paper eligible for repo operations will also be broadened, it said. See full statement.
