[ Keidanren ] [ Policy ]

A Proposal to Further Strengthen Japan's Financial System


September 29, 1999
(Japan Federation of Economic Organizations)

To build a financial system comparable to that found in other countries, Japanese financial institutions should devote their energy to clean up current non-performing loans. In addition, they must restructure their own organizations and team-up with others in the industry. At the same time, as per the original plan, eliminating the freeze on the payoff system should be implemented in April 2001. The financial industry should be fully governed by the principle of self-responsibility and the market discipline.

To achieve this, Keidanren urges the Japanese government and the ruling political parties to promptly present a blueprint that covers the following issues and to give it concrete shape with appropriate public support.

  1. Improve Legal and Tax Systems to Promote Restructuring of the Financial Industry
    1. Introduce the following legal and tax systems during the next ordinary session of the Diet:
      1. Legal system for corporate split and corresponding tax measures
      2. Tax measures for equity transfers and exchanges
      3. Legal rules regarding the transformation of mutual life insurance companies into joint-stock corporations
    2. Implement the consolidated tax payment system from fiscal 2001

  2. Establish a New Safety Net and Similar Infrastructure
    1. Establish a new safety net
      1. Set up conditions that will allow for quick payment on insurance claims
      2. Implement a bankruptcy processing system similar to the so-called Purchase and Assumption(P&A) in the United States, which allows for partial transfer of business operations outside of judicial proceedings
      3. Establish the bridge-bank system and the special public management system, which can be exceptionally implemented when there is no immediate successor or there is the possibility of systematic risk.
      4. Introduce a loss sharing rule for subsequent losses. This will help to find a successor to a bridge-bank, a special public management bank and to assist prompt application of the P&A technique
      These four measures enable Japan's financial industry to sufficiently sustain its clearing function.
    2. Clarify the treatment of current financial measures when the freeze on the payoff system will be eliminated
    3. Reassess the postal savings system

  3. Introduce Systems that Establish Self-Responsibility and Fully Exercise the Market Mechanism
    1. Enact a "Financial Services Act" at the earliest occasion
    2. Further reinforce consistency in the area of financial administration

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