Financial Restructuring: The Japanese Experience

Factors leading to financial reform The financial system of a country, regardless of time or place, is maintained to meet the economic conditions of that country. In the process of economic development, however, there occur new economic or technological conditions that foster change of the financial system: the coherence between the old financial system and the new conditions breaks down; internal inconsistencies deyelop; and the financial needs of the economy are not met sufficiently. In this situation , private financial institutions, which are rich in the spirit of , creative tinkering, develop innovations even within the old financial ' system and circumvent old regulations in order to conform to the new conditions. There is, however, a limit to what such innovations can do, and eventually political and economic pressure develops for relaxation or abolition of all regulations. Meanwhile,the regulatory authorities1 have no choice but to ratify these private sector innovations ns through liberalization of regulations or restructuring of the regulatory framework. In this way, the driving forces of financial reform are the emergence of contradictions between the old financial system and the new technological or economic conditions and the reaction of both public and private sectors to these contradic-, What then are the new technological and economic conditions that have driven the recent worldwide and simultaneous trend of financial reforms? There have been, in my opinion, four such conditions