[interview] Exclude Political Intervention, Enhance Deregulation " Reassessing the Financial Big Bang "

Eisuke Sakakibara: Professor of Keio University, Director of the Global Security Research Center

Eisuke Sakakibara is now a professor at Keio University and serves as director of the Global Security Research Center, being engaged in an analysis of global markets including Asia. Sakakibara graduated from the Economics Department of Tokyo University in 1964 and received his Ph.D. in economics from Michigan University in 1969.

Japan's Big Bang financial deregulation had been aimed primarily at liberalizing the financial industry. In this respect, the promotion of non-financial and foreign firms' entry into the financial industry has been a success. However, it was a great mistake to delay an introduction of a limit to the deposit protection under political pressures.
The Ministry of Finance spun off the Financial Supervisory Agency (now the Financial Services Agency) as an independent organization for inspection and supervision of financial institutions in order to put an end to the so-called convoy administration for the financial industry. The FSA should not succumb to political pressures only to repeat past mistakes or lose its goal. On the other hand, it was unexpected that the financial industry has failed to attract more customers or funds in spite of increasing newcomers.

There may be three factors behind the failure. First, bank management had lacked know-how or efforts. They had been required to take leadership in internal reforms, including outsourcing of computer system operations, from the global viewpoint. Banks had to dispose of cross shareholdings faster. Preoccupied with past relationship, however, they have failed to do so. The Big Bang deregulation should have given banks good opportunities to achieve more fruitful mergers. But mergers have come only among Japanese banks in a "me too" manner. Bank management has been responsible for such mergers. They should have had many other alternatives, including mergers with foreign banks, in order to improve business management and operations.

The second factor has been political intervention. Under the golden slogan of protecting the weak, politicians have forced private banks to undertake the small business protection administration. This is unreasonable. The protection of the weak is the duty of the government. Unreasonable regulations for the protection have prevented banks from setting interest rates at appropriate levels p?to expand their earnings. The FSA should employ its commissioner from the private sector and become more independent in order to exclude political intervention.

The third factor has been securities companies' mistakes. When investors were willing to expand investment, securities companies led them to suffer huge losses. Securities companies have been preoccupied with their defense, failing to make investor protection efforts. Such firms cannot attract customers.

The failure to attract funds for investment is a problem not only for the financial industry but also for the whole of the Japanese economy as a whole. The economy cannot be revitalized unless thorough deregulation is achieved in all regulated industries including distribution, construction and health care, as well as financial services. On politicians who are willing to defend their vested interest, markets should exert pressures and voters should do so through elections. The ultimate conclusion is that Japan should force structural reforms. I wonder Japan has changed since the financial Big Bang?