Regional Bank Temporarily Nationalized.

(From Journal of Japanese Trade & Industry (JJTI))

The government on Nov. 29, 2003, decided to acquire all the shares of Ashikaga Bank, one of the largest regional financial institutions, based in Utsunomiya, Tochigi Prefecture, and put it under temporary state control. The decision was made at a meeting of the government's Financial System Management Council held at the prime minister's official residence. Ashikaga Bank had a negative net worth of \102.3 billion as of Sept. 30, 2003, and took measures to declare itself insolvent, prompting the government to apply Article 102 of the Deposit Insurance Law to a regional bank for the first time.

Ashikaga Bank's capital adequacy ratio stood at -3.72%, far below the 4% threshold required for banks operating domestically, mainly because an auditing firm did not allow the bank to count as capital its deferred-tax assets - intangible assets resulting from accounting rules that allow the losses from taxable non-performing loan (NPL) write-offs to be set off against future taxable income - when it closed its books for the first half of fiscal 2003. The regional lender decided it could not rehabilitate itself and informed the Financial Services Agency it had become insolvent.

The government decided to place the insolvent regional bank under temporary state control in order to dispel the uncertainties surrounding regional financial institutions since it is set to impose a cap of \10 million per bank per depositor for ordinary deposits, checking accounts and other types of liquid bank savings ...