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New bank manual to ban loans for securities speculation.

TOKYO, March 30 Kyodo A new bank inspectors' manual will bar banks from extending loans to finance speculative securities and land deals, the chief causes of mammoth loans that went sour after the early 1990s burst of the asset-inflated ''bubble'' economy, according to a copy of the final version of the draft manual. The Financial Supervisory Agency (FSA) plans to have its bank examiners inspect banks' books in accordance with the new manual, starting on April 1. The draft manual obliges banks to report any serious misconduct or scandals by its employees that appear to be in contravention of laws to police or other law-enforcement or regulatory authorities. In phrases reminiscent of the 1995 bond-trading loss cover-up scandal at Daiwa Bank's New York branch, the manual says, ''In order to prevent a mishap from occurring...it is desirable for each employee to leave his or her office for more than two weeks each year.'' Daiwa Bank ex-bond trader Toshihide Iguchi magnified his losses through a series of repeated investment blunders while seeking to prevent his losses from being known by his superiors and official bank regulators. Iguchi did not take a sizable vacation for fear of his losses being discovered. Kyodo News obtained a copy of the draft manual, which was compiled by a panel of experts commissioned by the FSA. The panel is headed by University of Tokyo Professor Shinsaku Iwahara. In December, the panel released an interim report in which it reported a set of guidelines concerning the behavior of financial institutions that it planned to have banks conform to. Later the interim report drew flak from the Federation of Bankers Associations of Japan. The manual urges banks to reject any loan demands from underground crime syndicates or ''sokaiya'' corporate extortionists. Sokaiya are professional extortionists who threaten to disrupt shareholders' meetings with embarrassing questions on management practices. The manual urges banks and other financial institutions to inform customers not knowledgeable of the risks inherent in financial derivatives of such risks. In particular, the manual urges institutions that sell derivatives or act as intermediaries for derivative deals to inform such customers of ''maximum possible losses'' that the customers may have to rack up in concluding derivatives contracts with other parties. Derivatives are investment contracts whose value is linked with movements in commodity prices, interest rates or indicators in such products as currencies, stocks and bonds. Investors betting accurately on the directions of such prices, indexes or rates could rake in huge gains, while those betting the wrong way could lose profusely. The manual states the guidelines that the panel earlier devised for getting banks to apply stricter standards in classifying the quality of their loans are mere non-binding ''norms.'' ''We do not intend to legally oblige financial institutions to immediately live up to the classification standards in this manual. Even if financial institutions decide not to observe the norms as outlined in the manual, such a decision is not necessarily inappropriate if it is recognized that equivalent or more stringent
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Comment:New bank manual to ban loans for securities speculation.
Publication:Japan Weekly Monitor
Geographic Code:9JAPA
Date:Apr 5, 1999
Words:501
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