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Statement by the Governor

(tentative translation)

December 18,1997
Bank of Japan

1. The alleged illegal activities at Daiwa Securities and the Nikko Securities are most regrettable since they have severely damaged the credibility of both institutions.

2. Thus, the Bank of Japan has today strongly requested that Daiwa Securities and the Nikko Securities promptly take the necessary measures, including the enhancement of their internal control structures, to prevent the recurrence of such incidents. We expect to receive reports from Daiwa Securities and the Nikko Securities on concrete measures and will monitor the progress of their implementation.

3. We believe that these incidents will have a limited impact on the financial soundness of Daiwa Securities and the Nikko Securities. Nevertheless, we strongly hope that these institutions will take actions to restore the confidence of domestic and overseas counterparties at the earliest possible opportunity by promptly improving their organization so as to prevent the recurrence of such wrongdoings.

Based on this experience, the Bank of Japan will urge other financial institutions to further strengthen their overall risk management, including the enhancement of their internal control structures, using such occasions as our on-site examinations.