Deposit Insurance Corporation of Japan-Oparations of DIC

Deposit Insurance Corporation of Japan is an operating agency to achieve the objective of the Deposit Insurance Law defined as "To protect depositors, among others, by reimbursing insured depositors and purchasing deposits and other claims as necessary when a financial institution has suspended repayments of deposits, etc., and moreover, concerning the resolution of failures of financial institutions, to establish a system of arrangements for appropriate financial assistance in mergers and other transactions involving failed financial institutions, public management by financial administrators, transfer of the business of failed financial institutions, and measures for management of financial crises, etc., thereby contributing to the maintenance of the credit system."

DICJ undertakes the following operations to achieve the objectives of the law:

DICJ collects insurance premiums from insured financial institutions for the operations of the deposit insurance system. The insurance premiums to be paid by the insured financial institutions is calculated by multiplying the average balance of deposits and other claims by insurance premium rates which are determined by the DICJ's Policy Board and approved by the Commissioner of the Financial Services Agency and the Minister of Finance.

The amounts of insurance coverage provided to depositors are 1) entire amount protected for the deposits for settlement and payment purposes and 2) a maximum amount of ￥10 million in principal and accrued interests for time deposits and other instruments when an insurable contingency has occurred. If it is anticipated that insurance payments or the repayments of insured deposits will not be made for a considerable length of time, partial payments may be made to cover the immediate living expenses and other costs of depositors in the failed financial institution. As stipulated by Cabinet Order, partial payments are made against the balance of ordinary deposits (principal only) of each depositor, up to a limit of ￥600,000 per account.

When a financial institution fails, DICJ may extend financial assistance to an assuming financial institution and/or a bank holding company that purchases assets and assumes liabilities of or mergers with failed financial institution in order to facilitate the transaction. The financial assistance may take the form of a monetary grant, loan or deposit of funds, purchase of assets, guarantee or assumption of debts, subscription of preferred stock or loss sharing.

In case of partial transfer of business from failed financial institutions, the DICJ can provide financial assistance to the failed financial institutions in order to ensure equity among creditors. Additional financial assistance can be provided if necessary in response to the applications from them. When assuming financial institutions and/or bank holding companies ask DICJ to subscribe their preferred stocks and others, they need to submit a plan to ensure the financial health of the institutions.

DICJ may purchase deposits and other claims not covered by deposit insurance (for example, the principal of insurable deports in excess of ￥10 million, plus interest accrued thereon, or non-insurable foreign currency deposits, plus interest accrued) of financial institutions that have been subject to an insurable contingency, in response to requests from depositors, etc. The purchase price, known as "estimated proceeds payment", is to be calculated by multiplying the balance of claims on the date of the insurable contingency by a rate determined in consideration of the estimated liquidating dividend of the failed financial institution (the "estimated proceeds payment rate"), among other factors. If the amount recovered by DICJ from purchased deposits and other claims (excluding expenses related to their purchase) exceeds the estimated proceeds payment, the surplus is to be refunded to the depositors, etc. ("settlement payment")

When a financial institution fails and the Prime Minister issues an "order for management" (i.e., orders that the business or assets of the financial institution be placed under the management of a financial administrator), DICJ may be appointed as a financial administrator for failed financial institutions under the Deposit Insurance Law (Article 78, paragraph 2 of the Deposit Insurance Law).

The key activities of financial administrators are: 1) execution of its operation and management; 2) selection of assuming financial institutions and smooth transfer of the business; 3) pursuit of liability against former executives of failed financial institutions.

DICJ can establish bridge banks, as its own subsidiaries, which assume the business of financial institutions under management in order to provisionally maintain and continue until a private sector counterpart can be identified and the business transfer transaction will be completed.

When no private sector institutions can be found to acquire the assets and assume the liabilities of failed financial institutions in short order, the bridge bank can be established and undertake functions such as lending and other activities under the supervision of the DICJ. The life of the bridge bank is limited in two years after failed financial institutions are subject to an order under the management. In the period, the bridge bank has to complete the role as bridge bank through merger with, transfer of all operations and transfer of the shares to other parties, or liquidation decision of general meeting of shareholders. The limited life can be extended by a further year.

If the failure of a financial institution poses an extremely serious threat to the stability of the financial system and local and national economies, the Prime Minister can invoke the provisions of the law and take one or more of following three types of measures on the advice of the Council for Financial Crisis. DICJ can execute these operations with an order of the Prime Minister.

a. Subscription of shares, etc of financial institutions (except for case of b. below) by DICJ
b. Financial assistance to failed financial institutions and/or financial institutions with capital deficit in excess of the pay-out cost
c. Acquisition of entire shares of failed financial institutions with capital deficit byDICJ (banks under special crisis management)

In the case of b., an order for management by a financial administrator is to be issued immediately after the confirmation to make this arrangement. In the case of c., the FSA would appoint new directors and auditors of the bank under special crisis management, and they may proceed with necessary civil and criminal procedures to clarify the managerial liability of its former executives. This arrangement should be ended as soon as possible by transferring the business to an assuming financial institutions, etc.

DICJ can conduct on-site inspections of financial institutions, if the Prime Minister (legally mandated to the Commissioner of the Financial Service Agency) deems it necessary to ensure that the provisions of the Law are implemented efficiently. The scope of the on-site inspections include: 1) to check if payment of insurance premiums is being made properly; 2) to check if measures have been taken to prepare databases and improve information system for aggregating deposits held by the same depositors, as obligatory to financial institutions; and 3) to check the estimated amounts that can be repaid on deposits and other claims when a financial institution has been made subject to bankruptcy proceedings.

Aiming at strengthening capital base of financial institutions, DICJ has subscribed for their shares in accordance with the Early Strengthening Law, Financial Functions Stabilization Law (abolished in October 1998), Act on Organizational Restructuring, Act on Strengthening Financial Functions and Deposit Insurance Law, as follows (DICJ has undertaken share subscriptions under the Deposit Insurance Law while RCC, the contracted bank, has been entrusted to undertake those under other laws and acts.):
(1)	Capital injection operations At present, capital injection operations are conducted under the Act on Strengthening Financial Functions (until March 31, 2012) and the Deposit Insurance Law (measures against financial crises and capital injection into assuming financial institutions: permanent measures.)
(2)	Administrative operations Aiming at proper management and administration of shares subscribed through capital injection operations, DICJ has conducted hearings in a timely manner with issuing banks regarding their account settlements and has exercised a voting right at the general meeting of shareholders in accordance with the "Basic Policy in Exercising a Voting Right as a Shareholder."
(3)	Disposal operations DICJ has been making efforts at smooth disposal of shares subscribed through capital injection operations in accordance with the "Immediate Guideline for Disposal of Preferred Stocks, etc. acquired through Capital Injection with Public Funds" announced in October 2005 from the viewpoints of: (1) avoidance of public burdens; (2) stability of the financial system; and (3) sound management of financial institutions.

DICJ conducts specific activities under the agreement with the RCC such as 1) to provide the RCC with guidance and advice necessary to execute its operation; 2) to decide to inspect the assets of debtors where it is likely to be concealed; 3) to collect claims from the debtors whose assets are mortgaged in complicated manner. These activities are aiming at minimizing the public costs by maximizing the collection of debts through the coordination with the RCC.

DICJ's pursuit of civil and criminal liability includes the pursuit of managerial liability on the part of executives of failed financial institutions and former Jusen companies by the RCC, and the pursuit of managerial liability of former executives of failed financial institutions by DICJ in its capacity as a financial administrator. The pursuit of criminal liability of debtors has resulted in a number of accusations including obstruction of an auction, obstruction of execution, and fraud.

The Act on the Payment of Damage Recovery based on the Funds of Criminal Accounts (the "Act on Criminal Accounts Damages Recovery") became effective on June 21, 2008. The purpose of the Act is to establish the procedures for payment of damage recovery distributions in order to pay the distributions to victims of criminal acts such as fraud in which people were tricked to send money to designated deposit accounts, and by that to promptly recover proprietary damages of the victims.

At the request of financial institutions, the DICJ gives a public notice of procedures for payment of distributions to victims on its website "Public Notice based on the Act on Criminal Accounts Damages Recovery" where the DICJ posts relevant bank accounts as requested by financial institutions.

Year 2005
March 31	・For FY2005 deposit insurance premium rates were changed to 0.083% for general deposits and 0.115% for deposits for payment and settlement purposes.
May 1	・Financial Reorganization Division I and II of the Financial Reconstruction Dept. were merged into one division and renamed Financial Reorganization Division.
Oct. 28	・Statement by the governor "Immediate Guideline for Disposal of Preferred Stocks, etc. Acquired through Capital Injection with Public Funds" was announced to the public.

Year 2006
Feb. 23	・With an expansion of functions and an increase in board members, "Divestment Price Examination Board" was renamed "Divestment Examination Board for Preferred Shares."
March 31	・For FY2006 deposit insurance premium rates were changed to 0.080% for general deposits and 0.110% for deposits for payment and settlement purposes.
April 1	・Legal Affairs Dept. was newly established.
Aug. 29	・Regarding shares purchased from former Long-Term Credit Bank of Japan and former Nippon Credit Bank, a statement by the governor "Completion of Transfer and Selection of Entrustment" was announced to the public.
Nov. 13	・¥31.5 billion capital was injected into Kiyo Holdings in accordance with the Act on Strengthening Financial Functions.
Dec. 18	・¥9.0 billion capital was injected into Howa Bank in accordance with the Act on Strengthening Financial Functions. ・Investment in collateralized call loans (limited to those with collateral of Japanese Government Bonds) was commenced.

Year 2007
March 15	・Industrial Revitalization Corporation of Japan (IRCJ) was disbanded in accordance with the provisions of Article 43 of the Industrial Revitalization Corporation Law with completion of its mission stipulated in Article 19, Paragraph 1 of the said law.
April 1	・Audit Dept. was newly established. ・Task Force Divisions of Special Investigation Dept. and Osaka Operation Dept. were merged into respective Investigation and Recovery Division.
April 2	・DICJ medium-term goals and policy for operation were announced to the public (to be reviewed annually.)
June 5	・Liquidation procedures of IRCJ were completed.
June 30	・The Industrial Revitalization Account was abolished.

Year 2008
March 31	・For FY2007 deposit insurance premium rates were changed to 0.081% for general deposits and 0.108% for deposits for payment and settlement purposes.
April 11	・DICJ signed a share purchase agreement that it would sell all outstanding shares of Ashikaga Bank it held to Ashikaga Holdings, with Ashikaga Holding Co., Ltd., a consortium of Nomura Financial Partners Co., Ltd., Next Capital Partners Co., Ltd. and JAFCO Super V3 Investment Limited Partnership, and The Ashikaga Bank Ltd. (On July 1, 2008, all shares of the said bank was sold to Ashikaga Holdings.)
June 21	・Bank Transfer Fraud Recovery Division was newly established in the Treasury Dept. ・A website dedicated to giving a public notice stipulated in the Act on Criminal Accounts Damages Recovery was set up.