Progress in the Financial System Reform

(October 1999)

The Financial System Reform aims at revitalizing the Japanese financial market to an international market comparable to the New York and London Markets by the year 2001. The three principles are (1) free - toward a free market where the market mechanism prevails, (2) fair - toward a transparent and credible market, and (3) global - toward an international market ahead of its time. This reform is expected to contribute to the revitalization of our economy.

This reform is a comprehensive one covering all areas of the financial sector - banking, securities, and insurance. It drastically removes restrictions on products, services, and organizational structures, and at the same time, plans to improve fair trading rules for customer protection and framework for dealing with failures.

The reform has been put forward according to a plan formulated in June 1997, which indicates specific items of the reform and schedules of their implementation. Most of the measures which did not require revision of laws were implemented in FY1997, and most of those which required revision of laws were implemented in December 1998 when the Financial System Reform Law took effect. This law allowed over-the-counter sales of investment trust by banks and other registered financial institutions, introduced company-type investment trusts and privately-placed investment trusts, and switched licensing system to registration system for securities companies, among other measures.

This October, further advancement was made: brokerage commission was fully liberalized, restrictions on the range of business allowed to securities subsidiaries and trust banking subsidiaries were eliminated, issuance of straight bonds by banks was allowed, and insurance companies were allowed to enter banking business through subsidiaries.

The reform is making good progress. For example, since the Financial System Reform Law took effect, many banks have started over-the-counter sales of investment trusts, many financial institutions have started dealing the newly permitted over-the-counter securities derivatives, and over 20 securities companies have newly registered as of September this year. The Dai-ichi Kangyo Bank(DKB), the Fuji Bank, and the Industrial Bank of Japan(IBJ) have announced a merger plan using the framework of financial holding companies. The Sakura Bank and the Sumitomo Bank have agreed to form a strategic alliance premised on a full integration in the future. These movements indicate further reorganization of the financial sector. Thus, to date, the reform has been highly effective.

The remaining measures including entry of banks and trust banks into insurance business through subsidiaries, are to be put forward by the end of March 2001. The Japanese government intends to continue making solid and steady progress to complete the Financial System Reform.

[Financial System]

[Financial System Reform]