LDP diet members stayed on the sidelines, unwilling to risk public embarrassment by intervening to help the bank. The MOF was out of the picture as well. But FSA's toughness toward NCB has merely intensified the government's dilemma. The RCB is supposed to foreclose on the deadbeat borrowers, sell the collateral that had been put up by borrowers, and recoup the government's losses. The problem, however, is that the RCB is buying bad debts at government expense, but is not disposing of them.
Bankrupt firms stay open.
These are loans to companies that have not missed loan payments but whose business viability is in doubt. The great danger is that politicians will intervene and press the bank managers to maintain lending to firms that don't deserve new loans. Consider, for example, the different fates of two huge construction companies. Kokudo Kaihatsu went bankrupt last November, after Mitsui Trust and Tokai Bank refused to extend new loans. By contrast, Aoki construction was recently the beneficiary of extraordinary largesse from Industrial Bank of Japan and Asahi Bank, which decided to free the company from any need to repay its considerable debts.