Two financial regulations that were put in place by the Finance Ministry in March 1990 when Prime Minister Ryutaro Hashimoto was finance minister are expected to be the focus of a heated debate in the next ordinary Diet session, which convenes on Jan. 22, over who should take the administrative responsibility for the failure of seven housing loan companies. The regulations, in the form of a notification, were aimed at restricting loans made by financial institutions to real estate companies, but resulted in an increase in the volume of loans made to housing loan companies by financial institutions affiliated to agricultural cooperatives.

The Finance Ministry sent a notification on March 27, 1990, to ordinary financial institutions requiring them to restrict the growth rate of loans to real estate companies to a certain percentage within the total volume of loans extended. In coordination with the Agriculture, Forestry and Fisheries Ministry, the notification was sent the same day to agricultural financial institutions.

Hashimoto said at a news conference on Friday that the Finance Ministry did not send the notification to housing loan firms because such regulations should only be applied to licensed financial organizations such as banks that already conduct business under tight regulations. The ministry also said in the notification that financial institutions were required to inform the Finance Ministry of records of loans made to companies in the real estate, construction and nonbanking industries. However, this point was not included in the notification to agricultural cooperative-related financial institutions. During the news conference, Hashimoto said, "The Agriculture, Forestry and Fisheries Ministry said it did not notify agricultural cooperative-related financial institutions of this as they have already been required to report to the ministries their records of loans to housing loan firms."

These financial institutions had previously been allowed to make loans only to companies related to the agriculture, forestry and fisheries industries, but the Finance and Agriculture, Forestry and Fisheries ministries in October 1980 lifted the maximum limit of loans the institutions could make to housing loan firms. In line with this move, the institutions were required to inform the ministries of records of loans to housing loan firms once every six months.

However, application of the two regulations made it possible for the institutions to make loans to housing loan companies of unlimited amounts, according to observers. The loans made by agricultural financial institutions to seven housing loan companies surged to 5.6 trillion yen as of the end of March 1992 from 2.9 trillion yen as of the end of March 1989 because the loans of ordinary banks were tightly regulated.

Although institutions that made loans without sufficient screening should take responsibility for the loans, they have said they were given a bad hand in the aftermath of the collapse of the bubble economy. In addition, the Finance Ministry said in a memorandum to the Agriculture, Forestry and Fisheries Ministry that it would require parent banks of housing loan companies to promise in writing to take part in a rehabilitation program for housing loan companies so that the agricultural financial institutions would not have to shoulder a heavier burden.

The memo was issued in February 1993 without the consent of the parent banks in order to set the second rehabilitation program for the seven failed companies. "The bad loans increased because (the Finance Ministry) did not solve, at that time, problems concerning the housing loan companies, which had already become financially troubled," a bank executive said.

The Finance Ministry is also expected to be pressured to take administrative responsibility for sending the memo, according to observers.