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Last Updated: Tuesday, 2 December, 2003, 15:00 GMT
Praise for Japan's banking policy

By Jonathan Head
BBC Correspondent in Tokyo

Ashikaga bosses bow after declaring their bank was bankrupt
Handling of the Ashikaga Bank's collapse has been praised

The Japanese authorities have been widely criticized in the past for propping up indebted companies, but Japan's recent handling of its banking crisis has won praise from the Paris-based Organisation for Economic Cooperation and Development (OECD).

In its latest report on the state of the Japanese economy, the OECD described the government's nationalization of an insolvent regional bank over the weekend as a model way of dealing with the problem without causing panic in the financial markets.

The last time the Japanese government bailed out a bank back in March, it cost the taxpayer $16bn - and yet the renamed Resona bank is still making massive losses.

So last weekend the government got tougher - it simply took over the regional bank Ashikaga, which it discovered was technically bankrupt - and that meant sacking the management and giving nothing to shareholders.

Vital role

But the move was carefully signposted, and executed at midnight on Saturday - so by the time the markets opened on Monday, there was little financial panic.

The OECD has applauded this approach, describing it as a model way of confronting bad banks.

Japan's regional banks perform a vital role - accounting for around half of all lending in the economy - but many saddled themselves with bad loans during the boom years of the 1980s while around 20 others are thought to be in serious trouble.

The OECD gives a mixed report card on the rest of the economy though - noting that while economic growth has picked up this year, it is still fragile, based more on exports than domestic spending.

The Organisation warns that high unemployment, rising government debt and a stronger yen could still hold back a full recovery.

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