• Bank of Japan Outlines Program to Promote Lending
  • June 23, 2010
  • Law Firm: Alston Bird LLP - Atlanta Office
  • Today, the Bank of Japan (BOJ) outlined a program for the provision of up to 3 trillion yen ($32.8 billion) to promote lending by financial institutions. The BOJ had announced on May 22 a preliminary framework for the program, which is intended to curb deflation and encourage sustainable growth by acting “as a catalyst for financial institutions in making efforts toward strengthening the foundations for economic growth.”

    Financial institutions that are already participants in the BOJ’s funds-supplying operations against pooled collateral, which provides funds against a wide range of collateral (such as government bonds), will be eligible to participate in the program; however, in a departure from steps taken by other central banks, participants in the BOJ’s program must submit a plan outlining how it will use the funds “to support strengthening the foundations for economic growth.” Examples of qualifying uses of loan proceeds are provided in the appendix to the terms and conditions for the program published today by the BOJ. The participant's plan must be approved by the BOJ before any funds will be disbursed. Unlike other BOJ programs, the BOJ stated that the loan proceeds should not be loaned to the government, municipal governments or financial institutions.

    Participating financial institutions may obtain a one-year loan, which may be rolled over up to three times, of up to 150 billion yen at the BOJ’s uncollateralized overnight call rate, which has remained at 0.1% since December 2008; however, the BOJ will not disburse more than 1 trillion yen on any of the quarterly distribution dates. The BOJ expects to start providing funds by the end of August. It will make its last disbursements on June 30, 2012, and will not accept any applications for new loans after March 31, 2012.