(1) The environment surrounding Japan's financial sector has been greatly changing due to such progress as financial liberalization, diversification and sophistication of users' needs, innovations in financial and information technology, internationalization, and a chronic surplus of money in the economy, etcetera.
In particular, the chronic surplus of money in Japan's economy urges all economic participants, i.e. financial institutions and users, to consciously respond to change, in both financing and asset management.
In this changing environment, financial institutions are developing their function as financial intermediaries by utilizing financial technology and risk management skills, such as derivatives transactions and transforming financial assets into liquid forms, etcetera. Non-bank lending institutions ("Non-banks", hereinafter) have begun performing functions similar to banks and other depository institutions ("banks" hereinafter) in financial intermediation. Even banks' money settlement function may significantly change in the future, due to such developments as various projects in the electronic money and electronic payment areas.
In addition, user friendly markets have been established in financial
centers abroad, especially in London after its "Big Bang."
As economic activities become increasingly borderless, it has
become possible for Japanese users and financial institutions
to freely access foreign financial markets of their choice. There
has been anxiety over the possible outflow of financial transactions
to foreign financial centers and the resulting hollowing out of
Japan's financial markets.
(2) Therefore, constant improvement of financial systems is necessary
to enable Japan's financial institutions to quickly and flexibly
respond to the above changes in environment and to develop their
own businesses, as well as to enable users to efficiently raise
and invest money.
(3) In April 1993, the so-called Financial System Reform Laws
was promulgated, following the report titled "On a New Japanese
Financial System" issued in June 1991 by the Financial System
Research Council ("FSRC" hereinafter). Since then,
there have been financial system reforms, such as cross-sectoral
entry through subsidiaries between the banking, trust, and securities
businesses. However, with many financial institutions faced with
inherited burdens such as resolving bad loans after the collapse
of the so-called "bubble economy", it is thought that
reform is late and the international competitiveness of Japan's
financial institutions is declining.
(4) Under such circumstances, there is a new administrative system
for the financial sector. The so-called "Three Acts",
which addressed the stabilization of the financial system, were
established in June 1996, and the organizational reform of the
supervisory system has continued. It is necessary for Japan to
seize the opportunity and make every effort to reform the financial
systems heading toward the year 2001.