BOJ Kuroda calls for prompt solution to Europe's banking woes

October 6, 2016 5:44 PM EDT

Bank of Japan Governor Haruhiko Kuroda (C) speaks to reporters at the Willard Intercontinental Hotel during the annual meetings of the IMF and World Bank Group in Washington, October 6, 2016. REUTERS/James Lawler Duggan


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By Leika Kihara

WASHINGTON (Reuters) - Bank of Japan Governor Haruhiko Kuroda on Thursday urged European policymakers to act promptly to solve the region's banking sector problems, signaling a delay could have a negative effect on their economies.

Alluding to Japan's experience struggling with a domestic banking crisis in the late 1990s, Kuroda said it was true the country took a long time to solve its banking sector woes, with the delay having had an adverse effect on the economy.

"It's necessary to identify the problem quickly and deal with the problem as soon as possible," Kuroda told reporters, when asked about Europe's financial system woes including concerns over the financial state of Deutsche Bank.

But he added that there was no one-size-fits all solution because each country's financial system and banking sector has its own unique features.

"I expect European authorities to take action to solve their banking-sector problems promptly," he said before attending a Group of 20 finance leaders' gathering.

The International Monetary Fund's view is that while Europe's financial system woes were among risks to global growth, they did not pose an immediate threat to the European and world economies, Kuroda said.

Deutsche Bank has been engulfed by a crisis of confidence since the U.S. Department of Justice last month demanded up to $14 billion to settle claims that the bank missold U.S. mortgage-backed securities before the financial crisis.

Questions over the health of Germany's largest lender overshadowed the annual IMF and World Bank meetings in Washington, where policymakers debated ways to deal with low growth and subdued inflation.

Kuroda said he would explain to his G20 counterparts that the BOJ has made "quite a strong" commitment by pledging to maintain ultra-loose monetary policy until inflation stably overshoots its 2 percent inflation target.

He also shrugged off the view that central banks have exhausted their policy ammunitions to spur growth.

"I don't think that monetary policy has reached limits," he said.

Japan suffered a severe recession and banking crisis in the late 1990s after banks dragged their feet getting rid of their huge non-performing loans built up during an asset bubble.

Policymakers were also late in injecting public money to resuscitate ailing banks on public outrage over using taxpayers' money to bail them out, delaying an end to the crisis.

(Reporting by Leika Kihara; Editing by Andrea Ricci and Diane Craft)



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