Bank of Japan deputy says no free lunch for banks

NAPLES, Fla., Nov 2 - Central banks have acted as catastrophe insurers for financial institutions that are too big to fail and should collect "premiums" from them in the form of stricter regulation and actual monetary payments, the Bank of Japan's deputy governor said on Monday.

"Free shelters should be provided against hurricanes but there should be no free umbrella against plain old rain," Kiyohiko Nishimura, the BOJ deputy governor, told a global financial conference in Florida sponsored by the CME Group derivatives marketplace.

He said central banks have essentially provided free hazard insurance by bailing out troubled institutions, but must start charging for the service in order to discourage overly risky behavior by firms whose managers know they will not be allowed to fail.

He did not offer specifics but said those "systemic" institutions should pay monetary premiums, as well as submit to tighter regulation.

"Premium payments is a key issue," Nishimura said.

He nodded in agreement when another panelist at the conference, Frederic Mishkin, a former U.S. Federal Reserve governor who is now a banking and finance professor at the Columbia Business School, suggested that too-big-to-fail institutions should face higher capital charges.