Big Bang Report

8/6/2019 Big Bang Report

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SUBMITTED TO:

MMRSRS. I. IRFATHRFATH JJAHANAHAN

LECTURER

BBA DEPARTMENT

SUBMITTED BY:

TTANZINAANZINA AALAMLAM ------B – 083235------B – 083235

SSHAHIDAHAHIDA NNAZNEENAZNEEN - B – 083244- B – 083244SSK K . N. NOURINOURIN AANWAR NWAR -B – 083234-B – 083234

TTARANNUMARANNUM HHOQUEOQUE --B – 083232--B – 083232



I

June 23, 2011June 23, 2011

Miss. Irfath JahanMiss. Irfath Jahan

Lecturer, Department of Business Administration ( BBA)Lecturer, Department of Business Administration ( BBA)

International Islamic university Chittagong (IIUC)International Islamic university Chittagong (IIUC)

Sub:Sub: Letter of TransmittalLetter of Transmittal

Dear Madam,Dear Madam,

It is a great pleasure for us to submit the report onIt is a great pleasure for us to submit the report on “Big Bang (Financial Crisis) of “Big Bang (Financial Crisis) of

London and Japan”London and Japan”. We are submitting this report as the part of our course material.. We are submitting this report as the part of our course material.

This is an exploratory study in a complete form and we have tried our level best toThis is an exploratory study in a complete form and we have tried our level best to

complete the study in proper format given by you. It is true that it could have been donecomplete the study in proper format given by you. It is true that it could have been done

in better way if there would not be any limitations such as the limited time and necessaryin better way if there would not be any limitations such as the limited time and necessary

resources.resources.

We appreciate you will asses our report considering the limitations of the study. Your We appreciate you will asses our report considering the limitations of the study. Your

kind advice will encourage us to do further research in future.kind advice will encourage us to do further research in future.

Sincerely yours,Sincerely yours,

___________________ __________ ___________________ __________

Tanzina Alam Shahida NazneenTanzina Alam Shahida Nazneen

ID # B - 083235 ID # B - 083244ID # B - 083235 ID # B - 083244

____________________ ___________ ____________________ ___________

Sk. Nourin Anwar Tarannum HoqueSk. Nourin Anwar Tarannum Hoque

ID # B - 083234ID # B - 083234 ID # B - 083232ID # B - 083232



II

AACKNOWLEDGEMENTCKNOWLEDGEMENT

In the preparation and finish this report, we acknowledge the encouragement andIn the preparation and finish this report, we acknowledge the encouragement and

assistance given by a number of people.assistance given by a number of people.

We would like to express our gratitude to our Course Instructor at IIUCWe would like to express our gratitude to our Course Instructor at IIUC

Miss. Irfath JahanMiss. Irfath Jahan for providing us detailed feedback and advice on this report. Hefor providing us detailed feedback and advice on this report. He

always gave us his suggestions in making this study as flawless as possible.always gave us his suggestions in making this study as flawless as possible.

We also like to thank our family and friend for giving us continuous support andWe also like to thank our family and friend for giving us continuous support and

suggestions. And never the less above all my heartiest thanks goes to all mighty Allahsuggestions. And never the less above all my heartiest thanks goes to all mighty Allah

without his help we would not be here.without his help we would not be here.



III

EEXECUTIVEXECUTIVE SSUMMERYUMMERY

The phraseThe phrase Big BangBig Bang, used in reference to the sudden deregulation of financial, used in reference to the sudden deregulation of financial

markets, was coined to describe measures, including abolition of fixed commissionmarkets, was coined to describe measures, including abolition of fixed commission

charges and of the distinction between stockjobbers and stockbrokers on the Londoncharges and of the distinction between stockjobbers and stockbrokers on the London

Stock Exchange and change from open-outcry to electronic, screen-based trading,Stock Exchange and change from open-outcry to electronic, screen-based trading,

enacted by the United Kingdom government in 1986. The day the London Stock enacted by the United Kingdom government in 1986. The day the London Stock

Exchange's rules changed, 27 October 1986, was dubbedExchange's rules changed, 27 October 1986, was dubbed "Big Bang Day""Big Bang Day" because of the because of the

increase in market activity expected from an aggregation of measures designed toincrease in market activity expected from an aggregation of measures designed to

precipitate a complete alteration in the structure of the market. Japan's long promised start precipitate a complete alteration in the structure of the market. Japan's long promised start

to financial deregulation, dubbed the "Big Bang," began inauspiciously on April 1. Asto financial deregulation, dubbed the "Big Bang," began inauspiciously on April 1. As

signs of a deep recession grew, the yen slid against the US dollar to near its lowest levelsigns of a deep recession grew, the yen slid against the US dollar to near its lowest level

in five years, and the stock market plunged, boosting the hidden losses of the country'sin five years, and the stock market plunged, boosting the hidden losses of the country's

major banks and finance houses. Western financial interests criticized the government of major banks and finance houses. Western financial interests criticized the government of

Prime Minister Ryutaro Hashimoto for introducing several new provisions allowing thePrime Minister Ryutaro Hashimoto for introducing several new provisions allowing the

debt-riddled money houses to effectively "cook their books," so as to disguise their debt-riddled money houses to effectively "cook their books," so as to disguise their

mounting losses and problem loans. Both the worsening economic slump and themounting losses and problem loans. Both the worsening economic slump and the

international complaints point to deeper, and fundamentally irresolvable, conflicts that lieinternational complaints point to deeper, and fundamentally irresolvable, conflicts that lie

at the heart of the "Big Bang" package. The three-year program to open up Japan'sat the heart of the "Big Bang" package. The three-year program to open up Japan's

banking, insurance, stock exchange and superannuation markets to global competition is banking, insurance, stock exchange and superannuation markets to global competition is

already leading to a ferocious struggle between the giant Japanese, European and USalready leading to a ferocious struggle between the giant Japanese, European and US

banks. banks.



T T ABLE ABLE OF OF CONTENTS CONTENTS

ParticularsParticulars Page NoPage No

AcknowledgementAcknowledgement IIII

Executive SummeryExecutive Summery IIIIII

Financial MarketFinancial Market 11

Types of Financial MarketTypes of Financial Market 11

Financial CrisisFinancial Crisis 22

Financial Crisis and Big BangFinancial Crisis and Big Bang 33

Possible Impact of the Big BangPossible Impact of the Big Bang 3 – 43 – 4

London Big BangLondon Big Bang 44

Effects of the Big Bang ImplementationEffects of the Big Bang Implementation 4 – 54 – 5

Advantages of the implementationAdvantages of the implementation 66

Disadvantages since the implementationDisadvantages since the implementation 77

Japanese Big BangJapanese Big Bang 88CauCauses of the financial Crisis in Japanses of the financial Crisis in Japan 8 – 108 – 10

Implementation of Big bangImplementation of Big bang 10 – 1110 – 11

Impact of the Japanese Big BangImpact of the Japanese Big Bang 12 – 1612 – 16

Effectiveness of the Big BangEffectiveness of the Big Bang 17 – 1817 – 18

ReferenceReferencess 1919

FFINANCIALINANCIAL MMARKETARKET::

In economics, aIn economics, a financial marketfinancial market is a mechanism that allows people to buy andis a mechanism that allows people to buy and

sell financial securities such as stocks and bonds, commodities such as precious metals or sell financial securities such as stocks and bonds, commodities such as precious metals or

agricultural goods, and other fungible items of value at low transaction costs and at pricesagricultural goods, and other fungible items of value at low transaction costs and at prices

that reflect the efficient-market hypothesis.that reflect the efficient-market hypothesis.

Both general markets where many commodities are traded and specializedBoth general markets where many commodities are traded and specialized

markets (where only one commodity is traded) exist. Markets work by placing manymarkets (where only one commodity is traded) exist. Markets work by placing many

interested buyers and sellers in one "place", thus making it easier for them to find eachinterested buyers and sellers in one "place", thus making it easier for them to find each



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other. An economy which relies primarily on interactions between buyers and sellers toother. An economy which relies primarily on interactions between buyers and sellers to

allocate resources is known as a market economy in contrast either to a commandallocate resources is known as a market economy in contrast either to a command

economy or to a non-market economy such as a gift economy.economy or to a non-market economy such as a gift economy.

In finance, financial markets facilitate:In finance, financial markets facilitate:

The raising of capital in the capital markets.The raising of capital in the capital markets.

The transfer of risk in the derivatives markets.The transfer of risk in the derivatives markets.

The transfer of liquidity in the money markets.The transfer of liquidity in the money markets.

International trade in the currency markets.International trade in the currency markets.

Typically a borrower issues a receipt to the lender promising to pay back the capital.Typically a borrower issues a receipt to the lender promising to pay back the capital.

These receipts areThese receipts are securitiesecurities which may be freely bought or sold. In return for lendings which may be freely bought or sold. In return for lending

money to the borrower, the lender will expect some compensation in the form of interestmoney to the borrower, the lender will expect some compensation in the form of interest

or dividends.or dividends.

Types of financial markets:Ty pes of financial markets:

The financial markets can be divided into different subtypes:The financial markets can be divided into different subtypes:

Capital markets which consist of:Capital markets which consist of:

oo Stock markets, which provide financing through the issuance of shares or Stock markets, which provide financing through the issuance of shares or

common stock, and enable the subsequent trading thereof.common stock, and enable the subsequent trading thereof.

oo Bond markets, which provide financing through the issuance of bonds, andBond markets, which provide financing through the issuance of bonds, and

enable the subsequent trading thereof.enable the subsequent trading thereof.

Commodity markets, which facilitate the trading of commodities.Commodity markets, which facilitate the trading of commodities.

Money markets, which provide short term debt financing and investment.Money markets, which provide short term debt financing and investment.

Derivatives markets, which provide instruments for the management of financialDerivatives markets, which provide instruments for the management of financial

risk.risk.

Futures markets, which provide standardized forward contracts for tradingFutures markets, which provide standardized forward contracts for trading

products at some future date; see also forward market. products at some future date; see also forward market.



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Insurance markets, which facilitate the redistribution of various risks.Insurance markets, which facilitate the redistribution of various risks.

Foreign exchange markets, which facilitate the trading of foreign exchange.Foreign exchange markets, which facilitate the trading of foreign exchange.

FFINANCIALINANCIAL CCRISISRISIS::

The termThe term financial crisisfinancial crisis is applied broadly to a variety of situations in whichis applied broadly to a variety of situations in which

some financial institutions or assets suddenly lose a large part of their value. In the 19thsome financial institutions or assets suddenly lose a large part of their value. In the 19th

and early 20th centuries, many financial crises were associated with banking panics, andand early 20th centuries, many financial crises were associated with banking panics, and

many recessions coincided with these panics. Other situations that are often calledmany recessions coincided with these panics. Other situations that are often called

financial crises include stock market crashes and the bursting of other financial bubbles,financial crises include stock market crashes and the bursting of other financial bubbles,

currency crises, and sovereign defaults. Financial crises directly result in a loss of paper currency crises, and sovereign defaults. Financial crises directly result in a loss of paper

wealth. They do not directly result in changes in the real economy unless a recession or wealth. They do not directly result in changes in the real economy unless a recession or

depression follows. Many economists have offered theories about how financial crisesdepression follows. Many economists have offered theories about how financial crises

develop and how they could be prevented. There is little consensus, however, anddevelop and how they could be prevented. There is little consensus, however, and

financial crises are still a regular occurrence around the world.financial crises are still a regular occurrence around the world.

FFINANCIALINANCIAL CCRISISRISIS ANDAND BBIGIG BBANGANG::

The "Big Bang" is a term used to mark the changesThe "Big Bang" is a term used to mark the changes which occurred in late 1986 towhich occurred in late 1986 to

the organizations and practices of the City of London as Britain's financial center.the organizations and practices of the City of London as Britain's financial center.

Changes occurredChanges occurred as a resultas a result of the sudden deregulation that swept through the Londonof the sudden deregulation that swept through the London

Stock Exchange. It the market place for trading corporate equity shares and U.K.Stock Exchange. It the market place for trading corporate equity shares and U.K.

government securities.government securities. Deregulation took place on October 27, 1986, and hasDeregulation took place on October 27, 1986, and has



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dramatically changed both the Exchange and its members. used in reference to the suddendramatically changed both the Exchange and its members. used in reference to the sudden

deregulation of financial markets, was coined to describe measures, including abolition of deregulation of financial markets, was coined to describe measures, including abolition of

fixed commission charges and of the distinction between stockjobbers and stockbrokersfixed commission charges and of the distinction between stockjobbers and stockbrokers

on the London Stock Exchange and change from open-outcry to electronic, screen-basedon the London Stock Exchange and change from open-outcry to electronic, screen-based

trading, enacted by the United Kingdom government in 1986.trading, enacted by the United Kingdom government in 1986.

The effects of Big Bang were dramatic both in London and Japan, with London'sThe effects of Big Bang were dramatic both in London and Japan, with London's

place as a financial capital decisively strengthened, to the point where it is arguably the place as a financial capital decisively strengthened, to the point where it is arguably the

world's most important financial centre even to the present day. An economic boomworld's most important financial centre even to the present day. An economic boom

created a new class of nouveau riche that has persisted for two decades, and the boomcreated a new class of nouveau riche that has persisted for two decades, and the boom

expanded beyond the City into new developments in the Isle of Dogs area. Deregulation,expanded beyond the City into new developments in the Isle of Dogs area. Deregulation,

which has stimulated financial innovation and enabled new entrants to provide services.which has stimulated financial innovation and enabled new entrants to provide services. Subsequent similar actions, such as the deregulation of the Japanese financial markets inSubsequent similar actions, such as the deregulation of the Japanese financial markets in

2001.2001.

Possible Impact of the Big Bang:Possible Impact of the Big Bang:

Some critics have charged that the deregulation, and the atmosphere that it created,Some critics have charged that the deregulation, and the atmosphere that it created,

were responsible for such scandals as the Barings collapse, although others argue thewere responsible for such scandals as the Barings collapse, although others argue the

opposite, that the failure to completely disestablish the old boys' networks was to blame.opposite, that the failure to completely disestablish the old boys' networks was to blame.

During the big bang such kinds of deregulation s took place such as :During the big bang such kinds of deregulation s took place such as :

Deregulation of the Markets- allowing people from the general public to tradeDeregulation of the Markets- allowing people from the general public to trade

on the London Stock Exchange. The Big Bang eliminated the 'middle man' alsoon the London Stock Exchange. The Big Bang eliminated the 'middle man' also

known as a stock-jobber, and formed aknown as a stock-jobber, and formed a meritocracy based market.meritocracy based market.

Less intimidation for prospective traders- the change from the open cry formatLess intimidation for prospective traders- the change from the open cry format

to an electronic screen based system made it easier to trade within the stock to an electronic screen based system made it easier to trade within the stock

exchangeexchange

Abolished fixed minimum commissions for buying and selling securities.Abolished fixed minimum commissions for buying and selling securities.

Substantially increased market activitySubstantially increased market activity



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LLONDONONDON BBIGIG BBANGANG::

Basically the "Big Bang" is a term used to mark the changesBasically the "Big Bang" is a term used to mark the changes which occurred inwhich occurred in

late 1986 to the organizations and practices of the City of London as Britain's financiallate 1986 to the organizations and practices of the City of London as Britain's financial

center. Changes occurredcenter. Changes occurred as a resultas a result of the sudden deregulation that swept through theof the sudden deregulation that swept through the

London Stock Exchange. It is the market place for trading corporate equity shares andLondon Stock Exchange. It is the market place for trading corporate equity shares and

U.K. government securities.U.K. government securities. Deregulation took place on October 27, 1986, and hasDeregulation took place on October 27, 1986, and has

dramatically changed both the Exchange and its members.dramatically changed both the Exchange and its members.

Prior to the Big Bang, membership to the stock exchange was limited to relativelyPrior to the Big Bang, membership to the stock exchange was limited to relatively

small partnerships engaged either in stock brokering, buying or selling securities on ansmall partnerships engaged either in stock brokering, buying or selling securities on an

agency basis for clients, or jobbing, making a market for stockbrokers in securities listedagency basis for clients, or jobbing, making a market for stockbrokers in securities listed

on the stock exchange. There was also a relative decline in the status of the Britishon the stock exchange. There was also a relative decline in the status of the British

securities market. In 1985, the London stock exchange's turnover was only 1/13th of thesecurities market. In 1985, the London stock exchange's turnover was only 1/13th of the

then number then number one ranked, New York Stock Exchange. Furthermore, technologicalone ranked, New York Stock Exchange. Furthermore, technological

development and expansion of transactions outside the stock exchange occurred.development and expansion of transactions outside the stock exchange occurred.

Advancements in the processing technology and developments in computers andAdvancements in the processing technology and developments in computers and

communication technology led to a shift towards foreign and over-the-counter block communication technology led to a shift towards foreign and over-the-counter block

transactions. This shift shook the foundations of the very existence of the stock exchange.transactions. This shift shook the foundations of the very existence of the stock exchange.

Finally the Big Bang allowed the mergingFinally the Big Bang allowed the merging of jobof job functionsfunctions between the jobber (a dealer between the jobber (a dealer

in stocks and shares) and the broker (a mediator between the jobber and the public).in stocks and shares) and the broker (a mediator between the jobber and the public).

Effects of the Big Bang implementation:Effects of the Big Bang implementation:

TheThe merger led to the abolition of the distinction between stock-jobbers andmerger led to the abolition of the distinction between stock-jobbers and

stockbrokers in the London Stock Exchange. Effect of the Big Bang:stockbrokers in the London Stock Exchange. Effect of the Big Bang:

Introduced negotiated commission rates vs. previous minimum fixed commission.Introduced negotiated commission rates vs. previous minimum fixed commission.

Allowed for the first time banks and financial companies could buy brokers andAllowed for the first time banks and financial companies could buy brokers and

market making firms, or they could join to the London Stock Exchangemarket making firms, or they could join to the London Stock Exchange

themselves.themselves.



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Changed from open-outcry (shouting/hand signals) to electronic, screen-basedChanged from open-outcry (shouting/hand signals) to electronic, screen-based

trading. The supporters of electronic trading claim that it is faster, cheaper, moretrading. The supporters of electronic trading claim that it is faster, cheaper, more

efficient for users, and less prone to manipulation by money makers andefficient for users, and less prone to manipulation by money makers and

broker/dealers. broker/dealers.

Expanded the market. For example, the ratio that the financial sector occupied inExpanded the market. For example, the ratio that the financial sector occupied in

England's GDP was 13.6% in 1985 (before the Big Bang) and rose to 17.2% inEngland's GDP was 13.6% in 1985 (before the Big Bang) and rose to 17.2% in

1990 (after the Big Bang).1990 (after the Big Bang).

Allowed people of lower classes to participate and gave them the chance toAllowed people of lower classes to participate and gave them the chance to

generate wealth from the stock exchange. This Liberalization in the London Stock generate wealth from the stock exchange. This Liberalization in the London Stock

Exchange was one of the biggest changes.Exchange was one of the biggest changes.

The big bang created an economic boom which brought about nouveau riche (newThe big bang created an economic boom which brought about nouveau riche (new

money/people to acquire wealth within their generation).money/people to acquire wealth within their generation). This economic boomThis economic boom

lasted for 2 decadeslasted for 2 decades creating large profits for institutions US investment banks ascreating large profits for institutions US investment banks as

well as in London with Citigroup and Bank of America.well as in London with Citigroup and Bank of America.

Also, the reason it got the name of the big boom was not because of how itAlso, the reason it got the name of the big boom was not because of how it

affected just London.affected just London. After the deregulations happening in London, similar After the deregulations happening in London, similar

actions took place in the Japanese financial markets therefore getting the nameactions took place in the Japanese financial markets therefore getting the name

"the Big Bang""the Big Bang"

The Big Bang enabled London to capture the rapidly growing market of internationallyThe Big Bang enabled London to capture the rapidly growing market of internationally

traded securities which includedtraded securities which included equity and debt securities of the world's largestequity and debt securities of the world's largest

corporations and governments. The integration of securities brokerage and marketcorporations and governments. The integration of securities brokerage and market

making with other financial activities such as securities underwriting and commercialmaking with other financial activities such as securities underwriting and commercial

banking allows the British financial institutions to become more powerful international banking allows the British financial institutions to become more powerful international

competitors. More importantly, it has encouraged the most powerful financial companiescompetitors. More importantly, it has encouraged the most powerful financial companies

to conduct their international securities business in London.to conduct their international securities business in London.

Advantages of the London Economy since the Big BangAdvantages of the London Economy since the Big Bang::

In addition to the benefits listed in the section above, theIn addition to the benefits listed in the section above, the positive effects of the Big Bang positive effects of the Big Bang

were:were:



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Brought on new ways of trading sharesBrought on new ways of trading shares

City expanded from its former boundaries around the old "square mile" andCity expanded from its former boundaries around the old "square mile" and

redrew the capital's skylineredrew the capital's skyline

Property boom reflects the city's expansion since the Big Bang. The CityProperty boom reflects the city's expansion since the Big Bang. The City

expanded into the Docklands/New Warf area.expanded into the Docklands/New Warf area.

Hedge-fund managers and private-equity firms have gravitated farther west toHedge-fund managers and private-equity firms have gravitated farther west to

posh Mayfair and St James', helping to drive up office rents there and keeping posh Mayfair and St James', helping to drive up office rents there and keeping

trendy restaurants busy.trendy restaurants busy.

Heathrow Airport is bursting at the seams, handling nearly 70 millionHeathrow Airport is bursting at the seams, handling nearly 70 million

passengers a year when it was designed for 45 million. passengers a year when it was designed for 45 million.

Roads, trains and buses are jam-packed. But clearly for the money-men theRoads, trains and buses are jam-packed. But clearly for the money-men the

attractions outweigh the hassles.attractions outweigh the hassles.

The specialist workforce grew. The workforce that carries out internationalThe specialist workforce grew. The workforce that carries out international

financial business has risen by 50% in the past 15 yearsfinancial business has risen by 50% in the past 15 years

London plays host to far more foreign banks than any other financial centreLondon plays host to far more foreign banks than any other financial centre

and has the biggest slice of the foreign-exchange marketand has the biggest slice of the foreign-exchange market

Big Bang was a turning point in the city's post-war history, securing itsBig Bang was a turning point in the city's post-war history, securing its

position as a centre for trading international equities. position as a centre for trading international equities.

The city, long notorious as a stuffy place where the old school tie matteredThe city, long notorious as a stuffy place where the old school tie mattered

more than the talent, became more of a meritocracy. It is the idea that skill ismore than the talent, became more of a meritocracy. It is the idea that skill is

based on merit not one's social position. based on merit not one's social position.

The Sarbanes-Oxley legislation, passed after the collapse of Enron in order to stiffen upThe Sarbanes-Oxley legislation, passed after the collapse of Enron in order to stiffen up

corporate governance, has put off foreign companies from listing in American markets.corporate governance, has put off foreign companies from listing in American markets.

The London Stock Exchange has been the big beneficiary.The London Stock Exchange has been the big beneficiary. Foreign firms have flocked toForeign firms have flocked to

list on its main market.list on its main market.

Disadvantages since Big BangDisadvantages since Big Bang::

Negative/Dishonest atmosphere. Negative/Dishonest atmosphere.



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Critics say that the Big Bang created a negative atmosphere, with people doingCritics say that the Big Bang created a negative atmosphere, with people doing

anything it takes to get ahead in the markets.anything it takes to get ahead in the markets. This means the Big Bang mightThis means the Big Bang might

have encouraged unlawful or unethical activity.have encouraged unlawful or unethical activity.

Along that same note, it has also been speculated that this caused the collapse of Along that same note, it has also been speculated that this caused the collapse of

the Barings Bank in 1995.the Barings Bank in 1995. What happened there was one man, Nick Leeson, anWhat happened there was one man, Nick Leeson, an

employee of the bank was involved in accounting fraud.employee of the bank was involved in accounting fraud. When exposed, theWhen exposed, the

incident resulted in the bank defaulting on all of its accounts and a loss of 827incident resulted in the bank defaulting on all of its accounts and a loss of 827

million pounds.million pounds. Not only that, but it was significant because the Baring Bank was Not only that, but it was significant because the Baring Bank was

the bank for the Queen, and it was the oldest merchant bank in London.the bank for the Queen, and it was the oldest merchant bank in London. It was soIt was so

old that it had funded the Napoleonic Wars.old that it had funded the Napoleonic Wars.

Two Rules were created in the late 1980's to help out after the deregulationTwo Rules were created in the late 1980's to help out after the deregulation

One rule dealt with securities houses that have markets in corporate shares, and itOne rule dealt with securities houses that have markets in corporate shares, and it

said that they were not necessarily obligated to trade with one another.said that they were not necessarily obligated to trade with one another.

The other rule dealt with the time frame as to when trades had to be reported.The other rule dealt with the time frame as to when trades had to be reported. ItIt

was changed from a matter of minutes to the next business day.was changed from a matter of minutes to the next business day.

The criticism about these rules is that Americans believed that these rules favoredThe criticism about these rules is that Americans believed that these rules favored

Londoners and gave them an advantage.Londoners and gave them an advantage.

The deregulation favored big companies.The deregulation favored big companies.

Many institutions that benefited from this change were foreign. For example, USMany institutions that benefited from this change were foreign. For example, US

banks were one of the greatest beneficiaries from the deregulation. banks were one of the greatest beneficiaries from the deregulation. This isThis is

somewhat funny because the deregulation was meant to help London competesomewhat funny because the deregulation was meant to help London compete

with foreign banks, including US banks.with foreign banks, including US banks.

Also interesting to note, Sarbanes-Oxley Act benefited LondonAlso interesting to note, Sarbanes-Oxley Act benefited London

This is definitely a downside to the deregulation.This is definitely a downside to the deregulation. This example shows how theThis example shows how the

United States more heavily regulating its markets as a result of financial scandals,United States more heavily regulating its markets as a result of financial scandals,

and it had a positive effect for London, which is not necessarily a good thing.and it had a positive effect for London, which is not necessarily a good thing.

Many people choose to do business in London instead of the U.S. in order toMany people choose to do business in London instead of the U.S. in order to

avoid the regulations.avoid the regulations.

JJAPANAPAN ESEESE BBIGIG BANGBANG::



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OOn November 11, 1996, Japanese Prime Minister Ryutaro Hashimoto unveiled a plan ton November 11, 1996, Japanese Prime Minister Ryutaro Hashimoto unveiled a plan to

reform Japanese financial institutions and markets by the year 2001. The plan, which consisted of reform Japanese financial institutions and markets by the year 2001. The plan, which consisted of

dozens of proposals, was called .Big Bang,. an analogy to the decade-earlier British effort todozens of proposals, was called .Big Bang,. an analogy to the decade-earlier British effort to

reform its securities industry and capital markets. The goal of Japanese Big Bang, as enunciatedreform its securities industry and capital markets. The goal of Japanese Big Bang, as enunciated

by the prime minister, was to create a .free, fair and global financial system. In that it would by the prime minister, was to create a .free, fair and global financial system. In that it would

operate according to market principles rather than regulatory prescriptions; fair, in that it wouldoperate according to market principles rather than regulatory prescriptions; fair, in that it would

be transparent and reliable; and global, in that it would be sophisticated and internationally be transparent and reliable; and global, in that it would be sophisticated and internationally

respected.respected.

Japan is the largest creditor nation in the world. It is the worlds second-largestJapan is the largest creditor nation in the world. It is the worlds second-largest

economy (after the United States) and accounts for the worlds second-largest insuranceeconomy (after the United States) and accounts for the worlds second-largest insurance

market. It has nine of the ten largest banks (in terms of loans outstanding) in the world.market. It has nine of the ten largest banks (in terms of loans outstanding) in the world.

Its citizens enjoy the world’s highest per capita income, and they contribute to one of theIts citizens enjoy the world’s highest per capita income, and they contribute to one of the

highest rates of savings in the world. However, the nation has been facing severehighest rates of savings in the world. However, the nation has been facing severe

financial problems for much of the past decade.financial problems for much of the past decade.

Causes of financial Crisis in Japan:Causes of financial Crisis in Japan:

Japans financial industry and markets were suffering from a constellation of Japans financial industry and markets were suffering from a constellation of

problems caused by government protection and excessive regulation. problems caused by government protection and excessive regulation. These problemsThese problems

include inadequate investment choices and returns, inefficient and noncompetitiveinclude inadequate investment choices and returns, inefficient and noncompetitive

financial institutions, and underdeveloped financial markets that both fail to meetfinancial institutions, and underdeveloped financial markets that both fail to meet

international standards for performance and are characterized by weak financial reportinginternational standards for performance and are characterized by weak financial reporting

and lack of transparency. Because of these problems, the country faces a potentiallyand lack of transparency. Because of these problems, the country faces a potentially

serious pension fund shortfall, a banking crisis, and a lack of respect for Japaneseserious pension fund shortfall, a banking crisis, and a lack of respect for Japanese

financial markets and currency.financial markets and currency.

Inadequate Investment Choices and Returns:Inadequate Investment Choices and Returns:





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The third major financial problem for Japan was that the nation’s financialThe third major financial problem for Japan was that the nation’s financial

markets were relatively underdeveloped. Because of a variety of prohibitions,markets were relatively underdeveloped. Because of a variety of prohibitions,

restrictions, and taxes, Japanese capital markets have not kept pace with other worldrestrictions, and taxes, Japanese capital markets have not kept pace with other world

markets and have, in fact, deteriorated greatly over the past decade. During the latemarkets and have, in fact, deteriorated greatly over the past decade. During the late

1980s, monthly trading volumes in Tokyo and New York were approximately equal;1980s, monthly trading volumes in Tokyo and New York were approximately equal;

today Tokyo’s volume is approximately 20 percent of New York with approximately 70today Tokyo’s volume is approximately 20 percent of New York with approximately 70

percent fewer shares traded now in Tokyo than during 1988. Not only has the volume of percent fewer shares traded now in Tokyo than during 1988. Not only has the volume of

foreign shares traded on the Tokyo Exchange declined substantially, but the exchangeforeign shares traded on the Tokyo Exchange declined substantially, but the exchange

percentage of domestic shares traded has declined as well. Approximately 18 percent of percentage of domestic shares traded has declined as well. Approximately 18 percent of

total trade in Japanese equities is now done in London, a threefold increase in the pasttotal trade in Japanese equities is now done in London, a threefold increase in the past

five years. One-third of the Nikkei 225 stock futures business is conducted fromfive years. One-third of the Nikkei 225 stock futures business is conducted from

Singapore. Moreover, the number of foreign companies listed with Tokyo has dropped bySingapore. Moreover, the number of foreign companies listed with Tokyo has dropped by

approximately one-half over the past five years.approximately one-half over the past five years.

IIMPLEMENTATIONMPLEMENTATION OFOF BBIGIG BBANGANG::

Japanese Prime Minister Hashimoto announced plans in November 1996 toJapanese Prime Minister Hashimoto announced plans in November 1996 to

accelerate and broaden financial reforms by creating "free, fair, and global" markets.accelerate and broaden financial reforms by creating "free, fair, and global" markets. HeHe

called these reforms the Japanese Big Bang based on its similarity to Britain’s 1986 Bigcalled these reforms the Japanese Big Bang based on its similarity to Britain’s 1986 Big Bang, which propelled the London Stock Exchange to increase its share of global stock Bang, which propelled the London Stock Exchange to increase its share of global stock

trading nearly five times by deregulating its stock market, abolishing fixed commissionstrading nearly five times by deregulating its stock market, abolishing fixed commissions

on securities transactions, and opening its stock market to foreign firms.on securities transactions, and opening its stock market to foreign firms. Japan’s BigJapan’s Big

Bang encompassed not only the stock market but also many other financial sectors andBang encompassed not only the stock market but also many other financial sectors and

markets, such as banks, insurance, foreign exchange, and bonds.markets, such as banks, insurance, foreign exchange, and bonds.

When Japanese government officials in the late 1990s fervently promoted the BigWhen Japanese government officials in the late 1990s fervently promoted the Big

Bang slogan of "free, fair, and global," they sounded like Japan finally had embracedBang slogan of "free, fair, and global," they sounded like Japan finally had embraced

economic "liberalism" after many decades of nationalistic policies designed to protecteconomic "liberalism" after many decades of nationalistic policies designed to protect

Japanese financial markets from foreign competition.Japanese financial markets from foreign competition. The words "free" and "fair" createdThe words "free" and "fair" created

visions of a government allowing domestic financial firms, along with foreign ones, tovisions of a government allowing domestic financial firms, along with foreign ones, to

compete with a minimum of governmental restriction, intervention, and support.compete with a minimum of governmental restriction, intervention, and support. SinceSince



11

Prime Minister Hashimoto's bold declaration in November 1996, the government'sPrime Minister Hashimoto's bold declaration in November 1996, the government's

interference in some areas and the lack of action in other areas have shown that the Biginterference in some areas and the lack of action in other areas have shown that the Big

Bang catch phrase did not change Japan'sBang catch phrase did not change Japan's mercantilist perspective, which Gilpin (1975,mercantilist perspective, which Gilpin (1975,

25) defines as the "subservience of the economy to the state and its interests-interests that25) defines as the "subservience of the economy to the state and its interests-interests that

range from matters of domestic welfare to those of international security."range from matters of domestic welfare to those of international security."

During Japan's bubble economy from 1985 to 1989, banks extended a hugeDuring Japan's bubble economy from 1985 to 1989, banks extended a huge

amount of credit with land or buildings as collateral.amount of credit with land or buildings as collateral. The stock and real estate bubbleThe stock and real estate bubble

burst in 1990 and left financial institutions exposed to significant amounts of non- burst in 1990 and left financial institutions exposed to significant amounts of non-

performing loans. performing loans. Throughout the 1990s, the Ministry of Finance delayed recognition of Throughout the 1990s, the Ministry of Finance delayed recognition of

Japanese banks’ bad loan losses and expressed reluctance to take actions against troubledJapanese banks’ bad loan losses and expressed reluctance to take actions against troubled

or insolvent financial institutions.or insolvent financial institutions. Japan’s position as a major international financialJapan’s position as a major international financial market rapidly declined in the 1990s.market rapidly declined in the 1990s. For example, the Tokyo Stock Exchange’s share of For example, the Tokyo Stock Exchange’s share of

global stock trading dropped to 17 percent in 1995 from 41 percent in 1990 (Katayamaglobal stock trading dropped to 17 percent in 1995 from 41 percent in 1990 (Katayama

1997).1997).

From June 1997 to January 1999, the Japanese government announced details of From June 1997 to January 1999, the Japanese government announced details of

the financial system Big Bang.the financial system Big Bang. The government implemented the key elements of theThe government implemented the key elements of the

Big Bang between 1997 and 2001.Big Bang between 1997 and 2001. A principal objective of the reforms was to turnA principal objective of the reforms was to turn

Tokyo into a world-class financial center on par with New York and London.Tokyo into a world-class financial center on par with New York and London. Japan’sJapan’s

Big Bang sought to break down barriers between banks, insurance companies, andBig Bang sought to break down barriers between banks, insurance companies, and

securities firms; liberalize brokerage commissions and foreign exchange laws; reform thesecurities firms; liberalize brokerage commissions and foreign exchange laws; reform the

corporate accounting system; open the doors to foreign competitors and new financialcorporate accounting system; open the doors to foreign competitors and new financial

products; and institute other measures to deregulate financial markets. products; and institute other measures to deregulate financial markets.

Although Japan began the Big Bang implementation in 1997, special interests andAlthough Japan began the Big Bang implementation in 1997, special interests and

government bureaucracies remained powerful.government bureaucracies remained powerful. For example, the Japanese governmentFor example, the Japanese government

continued to protect weaker financial institutions by extending complete governmentcontinued to protect weaker financial institutions by extending complete government

guarantees for all bank deposits and other claims on banks until March 2001.guarantees for all bank deposits and other claims on banks until March 2001. Also, theAlso, the

government continued to manipulate the bank's financial reporting rules for politicalgovernment continued to manipulate the bank's financial reporting rules for political

purposes. purposes.



12

Impact of the Japanese Big bang:Impact of the Japanese Big bang:

An efficient and competitive financial sector is absolutely essential for the vitality of An efficient and competitive financial sector is absolutely essential for the vitality of

the Japanese economy in the 21st century. The Financial System Reform, “Japanese Bigthe Japanese economy in the 21st century. The Financial System Reform, “Japanese Big

Bang,” was commenced in November 1996 under the three principles of “free, fair andBang,” was commenced in November 1996 under the three principles of “free, fair and

global,” aiming to rebuild the Japanese financial market into an international marketglobal,” aiming to rebuild the Japanese financial market into an international market

comparable to the New York and London markets.comparable to the New York and London markets.

As the first step, the revised Foreign Exchange Law was changed to totallyAs the first step, the revised Foreign Exchange Law was changed to totally

liberalize cross- border transactions in April 1998. Then, the Financial Systemliberalize cross- border transactions in April 1998. Then, the Financial System

Reform Law, a package of revisions of laws including the Banking Law, theReform Law, a package of revisions of laws including the Banking Law, the

Securities and Exchange Law, and the Insurance Business Law that were requiredSecurities and Exchange Law, and the Insurance Business Law that were required to implement the Financial System Reform, was enforced in December 1998.to implement the Financial System Reform, was enforced in December 1998.

Almost all measures were already implemented as follows.Almost all measures were already implemented as follows.

The means of asset management were improved, including the introduction of The means of asset management were improved, including the introduction of

new investment trusts and over-the-counter sales of investment trusts by banksnew investment trusts and over-the-counter sales of investment trusts by banks

and other financial institutions, and full liberalization of dealings in securitiesand other financial institutions, and full liberalization of dealings in securities

derivatives. Over-the-counter sales of investment trusts by banks and other derivatives. Over-the-counter sales of investment trusts by banks and other

financial institutions are steadily expanding, and the total volume of investmentfinancial institutions are steadily expanding, and the total volume of investment

trusts managed by banks and other financial institutions has reached 1,789 billiontrusts managed by banks and other financial institutions has reached 1,789 billion

yen as of September 1999.yen as of September 1999.

EEfforts were made to provide attractive services through vital intermediaryfforts were made to provide attractive services through vital intermediary

activities, such as promoting entry of banks, securities companies and insuranceactivities, such as promoting entry of banks, securities companies and insurance

companies into each other’s business, switching from the licensing system to acompanies into each other’s business, switching from the licensing system to a

registration system for securities companies, liberalizing cross-border capitalregistration system for securities companies, liberalizing cross-border capital

transactions and foreign exchange business, fully liberalizing brokeragetransactions and foreign exchange business, fully liberalizing brokerage commissions, and eliminating the obligation to use premium rates set by the non-commissions, and eliminating the obligation to use premium rates set by the non-

life insurance rating organization. Since switching to a registration system, manylife insurance rating organization. Since switching to a registration system, many

new securities companies including foreign ones have been established. (32new securities companies including foreign ones have been established. (32

companies have been newly registered during 13 months starting from December companies have been newly registered during 13 months starting from December



1998.) Furthermore, the full liberalization of brokerage commissions has led to1998.) Furthermore, the full liberalization of brokerage commissions has led to

expansion of trading of securities through the internet (online trading).expansion of trading of securities through the internet (online trading).

DiversifiedDiversified markets and channels for fund raising were created by abolishing themarkets and channels for fund raising were created by abolishing the

requirements to trade stocks only through stock exchanges, and introducingrequirements to trade stocks only through stock exchanges, and introducing

proprietary trading systems (electronic trading systems). The Tokyo Stock proprietary trading systems (electronic trading systems). The Tokyo Stock

Exchange established a new market for promising start-ups, so called MothersExchange established a new market for promising start-ups, so called Mothers

(Market of High Growth and Emerging Stocks), in November 1999, and there is a(Market of High Growth and Emerging Stocks), in November 1999, and there is a

plan to establish NASDAQ Japan stock market at the Osaka Stock Exchange in plan to establish NASDAQ Japan stock market at the Osaka Stock Exchange in

June 2000.June 2000.

A framework for reliable trading was established by improving the disclosureA framework for reliable trading was established by improving the disclosure

system, setting up fair trading rules, such as stricter insider trading control, andsystem, setting up fair trading rules, such as stricter insider trading control, and protecting customers in times of failure of financial institutions. Since the protecting customers in times of failure of financial institutions. Since the

accounting period ending March 1999, financial institutions are required by law toaccounting period ending March 1999, financial institutions are required by law to

disclose information on their non-performing assets on a consolidated basedisclose information on their non-performing assets on a consolidated base

according to standards equivalent to the ones set by the Securities and Exchangeaccording to standards equivalent to the ones set by the Securities and Exchange

Commission of the United States, with possible penalties for non-compliance.Commission of the United States, with possible penalties for non-compliance.

Such an extensive reform within a few years time is certainly unprecedented inSuch an extensive reform within a few years time is certainly unprecedented in

any country. Based on the results of the Financial System Reforms implemented so far,any country. Based on the results of the Financial System Reforms implemented so far,

and with a view to establishing a legal system that applies to financial institutions acrossand with a view to establishing a legal system that applies to financial institutions across

the board rather than by type of business category of financial institutions, we now intendthe board rather than by type of business category of financial institutions, we now intend

to submit the following bills to the Diet.to submit the following bills to the Diet.

As the framework for new rules, which covers a wide range of financialAs the framework for new rules, which covers a wide range of financial

transactions, collective investment schemes was developed to offer diversifiedtransactions, collective investment schemes was developed to offer diversified

investment products, such as real estate funds, and the obligation of financialinvestment products, such as real estate funds, and the obligation of financial

service providers to explain the products to customers was made clear andservice providers to explain the products to customers was made clear and

enforceable in order to protect customers.enforceable in order to protect customers.



13

14

AnAn electronic disclosure system was introduced for securities transaction reports,electronic disclosure system was introduced for securities transaction reports,

etc. Moreover, the Financial System Council is now studying reorganizing stock etc. Moreover, the Financial System Council is now studying reorganizing stock

exchanges and financial futures exchanges into joint-stock companies.exchanges and financial futures exchanges into joint-stock companies.

In order to promote the Financial System Reform, it is essential to ensure theIn order to promote the Financial System Reform, it is essential to ensure the

stability of the financial system. To this end, the Financial Function Earlystability of the financial system. To this end, the Financial Function Early

Strengthening Law and the Financial Revitalization Law were enforced inStrengthening Law and the Financial Revitalization Law were enforced in

October 1998, providing credit guarantees by the government of up to 25 trillionOctober 1998, providing credit guarantees by the government of up to 25 trillion

yen and 18 trillion yen respectively, in addition to the 17 trillion yen alreadyyen and 18 trillion yen respectively, in addition to the 17 trillion yen already

appropriated for the full protection of deposits.appropriated for the full protection of deposits.

Fiscal measures to increase the amount appropriated for the full protection of Fiscal measures to increase the amount appropriated for the full protection of

deposits from 17 trillion yen to 23 trillion yen are planned. It was also agreed indeposits from 17 trillion yen to 23 trillion yen are planned. It was also agreed in

December 1999 to extend the special measures to fully protect deposits by oneDecember 1999 to extend the special measures to fully protect deposits by one

year until the end of March 2002, as a matter of prudence.year until the end of March 2002, as a matter of prudence.

As a result of the financial system reform as well as ongoing restructuring, theAs a result of the financial system reform as well as ongoing restructuring, the

Japanese financial sector has entered a new era of competition; from the competitionJapanese financial sector has entered a new era of competition; from the competition

within the same field of business to the one that transcends the business field and nationalwithin the same field of business to the one that transcends the business field and national

borders. In these circumstances, reorganization of the financial sector through mergers borders. In these circumstances, reorganization of the financial sector through mergers

and establishment of holding companies are rapidly promoted and foreign institutions areand establishment of holding companies are rapidly promoted and foreign institutions are

increasingly penetrating into the Japanese market. The inward foreign direct investmentincreasingly penetrating into the Japanese market. The inward foreign direct investment

in the financial and insurance sectors almost tripled to reach the record high in FY1998.in the financial and insurance sectors almost tripled to reach the record high in FY1998.

It is expected that efficiency and profitability of financial institutions will improve,It is expected that efficiency and profitability of financial institutions will improve,

allowing them to make new strategic investments for financial innovations, and thusallowing them to make new strategic investments for financial innovations, and thus

offering advanced and diversified financial services to customers.offering advanced and diversified financial services to customers.

As a forerunner of the reform, aAs a forerunner of the reform, a revision on "Foreign Exchange and Foreign Traderevision on "Foreign Exchange and Foreign Trade

Control Act" has been submitted to the Diet last March. This is to delete the wordControl Act" has been submitted to the Diet last March. This is to delete the word

"Control" from the title and to liberalize the foreign exchange business except for few"Control" from the title and to liberalize the foreign exchange business except for few

special cases. This modification of the law was approved in May and wasin effect fromspecial cases. This modification of the law was approved in May and wasin effect from

April 1998. The concrete reform plans to be enacted by the year 2001 have beenApril 1998. The concrete reform plans to be enacted by the year 2001 have been

proposed by concerned advisory boards on such areas as finance, securities, trust proposed by concerned advisory boards on such areas as finance, securities, trust



banking, and insurance by June 1997. The preparation work is underway to revise the banking, and insurance by June 1997. The preparation work is underway to revise the

relevant laws necessary at the next extraordinary or ordinary diet session. Requests for relevant laws necessary at the next extraordinary or ordinary diet session. Requests for

relief from the expected impact and the rescheduling of the Big Bang are being heardrelief from the expected impact and the rescheduling of the Big Bang are being heard

from the financial industries, especially from the medium to small financial institutionsfrom the financial industries, especially from the medium to small financial institutions

and thoseand those with relatively low levels of rationalization. However, I believe, and I rather with relatively low levels of rationalization. However, I believe, and I rather

think it ought to be, that the reforms will take place in accordance with the reports fromthink it ought to be, that the reforms will take place in accordance with the reports from

the advisory boards.the advisory boards.

Two big Issues:Two big Issues: There are two big issues remaining with the ongoing reforms.There are two big issues remaining with the ongoing reforms.

One is the revision of the tax systems on the financial related areas. Currently, the TaxOne is the revision of the tax systems on the financial related areas. Currently, the Tax

System Council of the Government is studying the revision of the tax systems such asSystem Council of the Government is studying the revision of the tax systems such as

corporate taxes. It has still not been determined for such areas as the abolishment of thecorporate taxes. It has still not been determined for such areas as the abolishment of the securities transaction tax, which exists only in Japan, and the introduction of thesecurities transaction tax, which exists only in Japan, and the introduction of the

consolidated tax filing systems. Another issue is the privatization of the postal savingsconsolidated tax filing systems. Another issue is the privatization of the postal savings

system. In the interim report submitted on September 3rd on the reorganization of system. In the interim report submitted on September 3rd on the reorganization of

ministries and governmental agencies prepared by the governmental reform committee,ministries and governmental agencies prepared by the governmental reform committee,

only the fundamental policy was shown that the postal savings system, currently under only the fundamental policy was shown that the postal savings system, currently under

the control of the Ministry of Posts and Telecommunications, should be privatized in thethe control of the Ministry of Posts and Telecommunications, should be privatized in the

future with no specific targeted deadline. Private financial institutions maintain thatfuture with no specific targeted deadline. Private financial institutions maintain that

privatization of postal savings is prerequisite for the Big Bang because the postal savings privatization of postal savings is prerequisite for the Big Bang because the postal savings

gathers about 20% of all savings of the personal sectors, thereby pressuring the privategathers about 20% of all savings of the personal sectors, thereby pressuring the private

business. On the other hand, political parties maintain that the postal savings should keep business. On the other hand, political parties maintain that the postal savings should keep

the status quo. The final resolution is in the hands of political decision.the status quo. The final resolution is in the hands of political decision.

Diversification of financial products:Diversification of financial products: Regulation of securities derivatives wasRegulation of securities derivatives was

be eased step by step and completely deregulated by the end of fiscal year 1998. The be eased step by step and completely deregulated by the end of fiscal year 1998. The

system of comprehensive securities accounts was introduced by the end of fiscal year system of comprehensive securities accounts was introduced by the end of fiscal year

1997. Such accounts have functions of debiting stock purchase proceeds like short term1997. Such accounts have functions of debiting stock purchase proceeds like short term

municipal bonds investment funds and charges for public utilities. Liquidation of assetsmunicipal bonds investment funds and charges for public utilities. Liquidation of assets

through such programs as Asset Back Securities was introduced during fiscal year 1998.through such programs as Asset Back Securities was introduced during fiscal year 1998.



15

Upgrade of market and settlement system:Upgrade of market and settlement system: Regulations of banks'Regulations of banks'

additional stock issuance and payoff ratio was eliminated in fiscal year 1997. Toadditional stock issuance and payoff ratio was eliminated in fiscal year 1997. To

encourage competition among markets and to promote the smooth settlement of largeencourage competition among markets and to promote the smooth settlement of large

volume transactions, the obligation of transaction concentration to stock exchanges wasvolume transactions, the obligation of transaction concentration to stock exchanges was

abolished, thereby enabling the listed stocks to be circulated outside stock exchanges.abolished, thereby enabling the listed stocks to be circulated outside stock exchanges.

This was enacted by the end of fiscal year 1998. Margin trading on the Over the Counter This was enacted by the end of fiscal year 1998. Margin trading on the Over the Counter

(OTC) stocks was started to improve the liquidity of OTC stocks by the end of fiscal year (OTC) stocks was started to improve the liquidity of OTC stocks by the end of fiscal year

1998. Regulations on the flow back of Euro Bonds issued by the Japanese resident was1998. Regulations on the flow back of Euro Bonds issued by the Japanese resident was

abolished in the fiscal year 1998.abolished in the fiscal year 1998.

Preparation of the fair and transparent transaction rule:Preparation of the fair and transparent transaction rule: Market toMarket to

market accounting by banks and securities companies was introduced in fiscal year 1997.market accounting by banks and securities companies was introduced in fiscal year 1997.

Through the introduction of hybrid financial products that go beyond the framework of Through the introduction of hybrid financial products that go beyond the framework of

the traditional business classification, the traditional framework, which is based on thethe traditional business classification, the traditional framework, which is based on the

concept of business laws, should be revised. Uniform rules, which can be appliedconcept of business laws, should be revised. Uniform rules, which can be applied

commonly by the market participants, was considered. (Financial services law). Tocommonly by the market participants, was considered. (Financial services law). To

secure the health of the financial system, early remedial actions against the banks, lifesecure the health of the financial system, early remedial actions against the banks, life

insurance companies, and fire and marine insurance companies was considered and wasinsurance companies, and fire and marine insurance companies was considered and was

systematized by the end of fiscal year 1997. The consolidated balance sheet reportingsystematized by the end of fiscal year 1997. The consolidated balance sheet reporting

system was overhauled and the disclosure system with emphasis on the consolidatedsystem was overhauled and the disclosure system with emphasis on the consolidated

basis was considered and enacted by the end of fiscal year 1998. basis was considered and enacted by the end of fiscal year 1998.



16EEFFECTIVENESSFFECTIVENESS OFOF THETHE BBIGIG BANGBANG::

(1)(1) This reform is targeted toward the substantial changes to the This reform is targeted toward the substantial changes to the

industry protection oriented financial system, which sometimes isindustry protection oriented financial system, which sometimes is

referred to as an "armed convoy, " and thereby improving thereferred to as an "armed convoy, " and thereby improving the

convenience for the users and transforming the financial system to theconvenience for the users and transforming the financial system to the

market functions oriented in compliance with global standards.market functions oriented in compliance with global standards.

(2) Therefore, if the reform is carried out as intended, the following(2) Therefore, if the reform is carried out as intended, the following

effects may be expected:effects may be expected:

1) Users were able to select the most excellent financial service1) Users were able to select the most excellent financial service

available from wide selections not limited to the domestic market butavailable from wide selections not limited to the domestic market but

could be extended to overseas markets, including new financialcould be extended to overseas markets, including new financial

products. Also, comprehensive financial services, such as one-stopproducts. Also, comprehensive financial services, such as one-stop

financial services, may become available.financial services, may become available.

2) The barriers that have prevented financial institutions from entering2) The barriers that have prevented financial institutions from entering

each other's market were eliminated and competition will becomeeach other's market were eliminated and competition will become

fierce; thus, development of attractive financial products andfierce; thus, development of attractive financial products and

improvement of profitability through rationalization can be expected.improvement of profitability through rationalization can be expected.

3)3) The Japanese foreign exchange market, financial market, and The Japanese foreign exchange market, financial market, and

securities market was activated and was revived as growing industries.securities market was activated and was revived as growing industries.

It will also contribute to the internationalization of the Japanese Yen.It will also contribute to the internationalization of the Japanese Yen.



17

4)4) Cross border finance and settlement may be facilitated. GlobalCross border finance and settlement may be facilitated. Global

activity by corporations may be accelerated and will also stimulate theactivity by corporations may be accelerated and will also stimulate the

tie-up of corporations.tie-up of corporations.

(3) If the Big Bang is brought about, the bankruptcy of financial(3) If the Big Bang is brought about, the bankruptcy of financial

institutions may not be avoided to some extent. In preparation for suchinstitutions may not be avoided to some extent. In preparation for such

cases, a framework for bankruptcy such as the substantiation of acases, a framework for bankruptcy such as the substantiation of a

deposit insurance system, introduction of early remedial actions, anddeposit insurance system, introduction of early remedial actions, and

improvement of reorganization proceedings for the financialimprovement of reorganization proceedings for the financial

institutions need to be implemented.institutions need to be implemented.

Also the so-called "Wimbledon phenomenon, " which was broughtAlso the so-called "Wimbledon phenomenon, " which was brought

about by the Big Bang in the United Kingdom, could possibly happen inabout by the Big Bang in the United Kingdom, could possibly happen in

Japan, naturally. However, even if the Wimbledon phenomenon may be Japan, naturally. However, even if the Wimbledon phenomenon may be

brought along, it would be much more important for the financialbrought along, it would be much more important for the financial

capital market to become easier to utilize for the users and for thecapital market to become easier to utilize for the users and for the

market to become more activated.market to become more activated.

If we could have foreign financial institutions participate in the market,If we could have foreign financial institutions participate in the market,

it would provide good stimulation to Japanese financial institutions,it would provide good stimulation to Japanese financial institutions,

through competition.through competition.



18

R R EFERENCESEFERENCES::

http://wiki.uiowa.edu/display/06e169/The+Big+Bang

http://www.wsws.org/articles/1998/apr1998/jpnz-a10.shtml

http://www.fdic.gov/bank/analytical/banking/1998fall/japan.pdf

http://www.google.com/#hl=en&safe=off&q=financial+crisis+in+london+big+ba

ng&aq=f&aqi=&aql=&oq=&bav=on.2,or.r_gc.r_pw.&fp=b1e4aaf9634e0bf6&bi

w=1024&bih=638

http://en.wikipedia.org/wiki/Financial_market

http://en.wikipedia.org/wiki/Financial_crisis

Gilpin (1975, 25)




http://www.google.com/#hl=en&safe=off&q=financial+crisis+in+london+big+bang&aq=f&aqi=&aql=&oq=&bav=on.2,or.r_gc.r_pw.&fp=b1e4aaf9634e0bf6&biw=1024&bih=638













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