Capital Participation

Capital Participation under the Act on Special Measures for Strengthening Financial Functions

Act on Special Measures for Strengthening Financial Functions

The Act on Special Measures for Strengthening Financial Functions was enacted in August 2004 for the purpose of revitalizing regional economies through the strengthening of financial functions. It was amended in June 2011 in response to the Great East Japan Earthquake and in June 2020 to address the effects of COVID-19 and other factors. In recent years, as part of the efforts to improve the environment in which regional financial institutions and others can strengthen their management bases and fully perform their role in contributing to regional economies, the deadlines for and the scope of the capital participation and fund grant programs under the Act have been extended and expanded.

Criteria for Capital Participation

The government determines whether capital participation should be undertaken based on such criteria as whether smooth financing for small and medium-sized enterprises in the region can be expected, whether recovery of public funds is not expected to be difficult, and whether or not the institution is a failed financial institution nor a financial institution with negative net worth.

Basic Approach to the Exercise of Voting Rights

The shares, etc. subscribed for in connection with capital participation are preferred shares or similar instruments, which in principle carry restricted voting rights. However, voting rights may arise under certain conditions, e.g. where dividends are not paid. In such cases, RCC exercises voting rights, subject to the approval of the DICJ, taking into consideration whether doing so contributes to maintaining the soundness of the management of the financial institution, whether it contributes to securing financial resources for the repayment of public funds, and whether it is otherwise consistent with the purpose of the laws that serve as the basis for public capital participation, including the facilitation of financing.

Three Principles for the Disposal of Shares, etc.

Repayment of public funds is to be made either through the repurchases of the shares etc. by the relevant financial institution, or similar, subscribed for by RCC for the purpose of capital participation, or through sales to a third party (including sale in the market). In making decisions on the disposal of such shares and others, RCC evaluates and determines the matter based on the following three principles, and handles such disposal appropriately, subject to the approval of the DICJ:

  • Avoiding public burden
    (whether disposal can be made at an appropriate price equal to or higher than the acquisition price)
  • Not impairing the stability of the financial system
    (whether the method, scale, or other aspects of the disposal would adversely affect the market)
  • Not impairing the soundness of the management of the financial institution
    (whether there are any problems in light of the status of implementation of the management improvement plan, market evaluation, etc.)

Outstanding Balance of Capital Participation

Please refer to the capital participation record under the Financial Function Strengthening Act for the outstanding balance of capital participation.

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