Check out how Japanese megabanks will comply with new law

Will seek approval from shareholders this month.

Japan yesterday passed a law changing the way it deals with failed financial firms as part of its effort to avoid a repeat of the global financial crisis of 2008.

Proposed by the Financial Services Agency, the approved amendments allow brokerages and insurers to join banks in being eligible for emergency capital from the state-run deposit insurance agency.

The Upper House also approved “bail-in rules” that impose losses on investors of failing financial institutions to reduce taxpayers’ burden.

Mitsubishi UFJ Financial Group Inc.; Sumitomo Mitsui Financial Group Inc. and Mizuho Financial Group Inc., Japan’s three megabanks, will seek approval from their shareholders later this month to change corporate rules in accordance with the law amendment.

The revisions will allow the megabanks to issue preferred shares that can convert into common stock or be written off if firms become non-viable.

The Basel Committee on Banking Supervision, which sets international banking rules, has proposed that creditors contribute to shoring up firms’ finances before public money is used in the event of a crisis.