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The Bank of Japan's Measures regarding the Financial System after the Full Removal of Blanket Guarantee of Deposits

March 18, 2005
Bank of Japan


The financial system in Japan has been regaining stability, and the blanket guarantee of deposits will be fully lifted on April 1, 2005.Henceforth, financial institutions will be expected to amplify their efforts to develop innovative services tailored to customer needs, thus supporting economic activity.The Bank of Japan's basic stance regarding financial system policy must shift its focus in response to this changing environment: from crisis management to supporting private-sector initiatives toward providing more efficient and advanced financial services via fair competition, while maintaining overall system stability.

Ensuring financial system stability will be as essential as ever in the new financial environment.The Bank will continue to closely monitor developments regarding the soundness of financial institutions, their liquidity management, and related settlement risks.It is also important to pay attention to contingency planning for dealing with emergencies such as natural disasters or terrorist attacks.Should the stability of the financial system be threatened, the Bank will promptly implement measures, including those as the lender of last resort, to prevent the manifestation of systemic risks.

At the same time, looking ahead, the availability of more efficient and advanced financial services will be an important prerequisite for the sustainable and stable growth of Japan's economy.Under the rapidly changing environment surrounding the Japanese economy, it is necessary for financial intermediation mechanisms to be flexible and robust with more diversified channels for supplying credit, in order to achieve smooth and efficient allocation of funds and to reinvigorate the economy.Before such mechanisms are firmly established, however, a wide range of financial system-related challenges remain to be addressed: for example, reviewing lending practices, promoting more sophisticated risk management by financial institutions, and developing new markets for credit.As such an evolution of the financial system is realized, through the efforts of all interested parties, the impact of monetary policy should be more effectively transmitted throughout the economy.

In this context, the Bank will encourage financial institutions' efforts to improve their management of risks and business activities, through its on site examinations and off-site monitoring.As a part of this process, the Bank will review its organization and strengthen its channels for communications to help financial institutions tackle the issues they face.The Bank will also review the services relating to current accounts that form the infrastructure of the financial system, and any other services, with a view to increasing transparency and efficiency.

In accordance with the above basic stance, the Bank will contribute to enhancing the functioning and robustness of the financial system in Japan.