The double-name principle might reduce the probability of defaults, but taking a firm’s debt as collateral is not sufficient if the firm’s creditworthiness is bolstered by the support of the commercial bank to which the Bank of Japan is lending. Nor is it desirable for the Bank’s assets and collateral to be concentrated in the liabilities of firms in a particular industry.
The Bank pays careful attention not only to the soundness of individual assets but the entire portfolio, ensuring that its assets and collateral are not exposed to linkages of risk or excessive risk concentration. The second principle is to maintain neutrality with respect to resource allocation.