Katsunori Nagayasu, chairman of the Japanese Bankers Association, told a regular news conference time is running out as the government panel on nuclear damages compensation is set to release guidelines around late July.
"It will be known how much the compensation will be in rough figures, but if there is no (government) scheme for that then, Tokyo Electric could immediately become insolvent," he said.
"And it will trigger a series of risks for the power industry and the markets and put a damper on Japan's reconstruction efforts," he said.
Japan's parliament has started deliberations on a bill to set up a fund to help the operator of crippled nuclear reactors in Fukushima pay for damages, which could total billions of dollars.
Japanese banks, including Nagayasu's Mitsubishi UFJ Financial Group , provided a total 2 trillion yen in March in emergency loans to Tokyo Electric.
The creditors has been pushing for strong government commitment to keeping Tokyo Electric solvent and listed on the stock exchange, fearing a massive shock to the equity and bond markets in case of its default.
Nagayasu also said the direct impact from U.S. and European debt problems is relatively limited on the Japanese economy. But the European sovereign issue has various indirect ramifications, including a higher yen.
"A continued rise in yen would deal a great blow to the Japanese economy," he said.
(Reporting by Taiga Uranaka; Editing by Chris Gallagher)
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