The cabinet has approved the Bank of Thailand's two legal amendments to back future operations of financial bailout funds in lending to troubled banks and to ease lending rules for related parties.

The central bank received the cabinet's approval in October to amend the Bank of Thailand Act to allow the Financial Institutions Development Fund (FIDF) to give liquidity to troubled banks in the form of lending with or without collateral based on conditions under guidelines approved by the cabinet; purchasing equities of troubled banks; or purchasing their debt paper or other claims.

But the law required the FIDF to consult the central bank and its internal Financial Institutions Supervision Committee on a rehabilitation plan before forwarding it to the cabinet for approval.

The amendment would empower the FIDF as an entity ready to solve the problems of banks, as the Deposit Protection Agency's scope is limited to liquidating bank assets and giving compensation to depositors.

The other legal amendment receiving cabinet approval is October's Financial Institutions Act. The amendment process seeks to ease the definition of lending to related parties by allowing the central bank to approve on a case-by-case basis banks' lending to companies whose executives on both sides are related.

The central bank has restricted lending to related parties since the 1997 economic crisis for circumstances such as a bank lending to a company in which it held more than 30% of the shares and there was a relationship between executives of the banks and the borrowers.