retail financial services that accurately meet the various needs of households, it is necessary to ensure sound competition among financial institutions. however, in the past, the government and the bank showed extreme care in handling even a small sign of instability within the financial system, bearing in mind that it could generate systemic risk and damage the stability of the entire system. however, in the course of the last ten years, we have seen the firm establishment of a safety - net system necessary for handling such situations as the bankruptcy of a financial institution, and the government and the bank have accumulated practical experience in dealing with such emergencies. furthermore, financial institutions have now nearly overcome the npl problem, and from april 2005 the blanket guarantee of deposits was fully lifted without any disruption. considering this situation, in order to promote the sound development of the japanese economy, i think it is appropriate to shift the main focus of policies regarding the financial system from crisis management to strengthening the financial function. enhancement of financial functioning is strongly needed also in retail financial services. for example, complicated financial products that require a high level of knowledge are increasing. in this situation, financial institutions are expected to fulfill their function by providing individuals with easy - tounderstand product information, and adequately transforming complicated products into easily understood ones. to this end, a key policy issue will be to secure an environment that allows free competition among a wide range of financial institutions, including public ones, to promote innovations in improved financial products and services. c. solidifying mutual trust between financial institutions and households another key policy issue is to establish a relationship based on enhanced mutual trust between financial institutions and households. between financial institutions and households, there exists an extremely large disparity in financial knowledge and amount of access to relevant information. in addition, financial institutions store a massive amount of personal information. from a policy perspective, therefore, it is extremely important to minimize harmful influences stemming from this information disparity and information concentration, and to encourage voluntary measures by financial institutions to contribute to a relationship with customers based on enhanced mutual trust. considering the high possibility that various types of financial institutions, including companies other than banks, will become involved in a wide range of financial services, a relationship based on enhanced mutual trust with individuals becomes all the more important. mutual trust should be reinforced in various stages of intermediary functions, such as during the development of financial products, sales, and asset management. i would like to emphasize two points indispensable to that end. my first point concerns

checking accounts are frequently used in the united states, but not everyone can write a check, nor can they do so every time they want to. in contrast, in japan ordinary deposits allow payment transactions on an unlimited basis while bearing interest. taking this feature into account, ordinary deposits in japan are indeed a value - added financial service. as implied by this case, it is important for japanese financial institutions to earn rational profits from the day - to - day retail payment business. concurrent with the progress in it, there has been an increase in financial crimes not seen previously. at the same time, households are demanding greater information security from financial institutions in addition to efficiency in transactions. for the financial system to function stably, it is necessary for each financial institution to take appropriate measures to ensure information security. at the same time, i think such efforts to ensure information security can be an important key to differentiating the quality of " invisible " payment services and thus allowing the setting of rational charges. iii. toward further development of sound retail financial business a. policy issues let us next consider the significance of further developing financial services for individuals in view of overall economic activity and social welfare. first, meeting the financial needs of households more efficiently by providing a wide range of retail financial services not only supports the economic activity of households, but also, by channeling part of household funds stably to various firms, contributes to future growth in the japanese economy as a whole. second, it contributes to enhancing the robustness of the japanese financial system. it cannot be denied that, in japan, financial assets held by households have been concentrated heavily in deposits, and this has caused the concentration of various risks at banks. if households were to hold assets of varying types of risks, the risks borne by banks would be reduced, thus enhancing the robustness of the financial system. to achieve this result, some call for policies to induce a shift of household assets " from savings to investment. " however, the asset portfolios of households cannot be changed significantly merely by imposing a one - sided risk transfer from financial institutions. it is important to encourage households to voluntarily take on risks suitable for their own risk preferences. to this end, financial institutions should provide products and services that meet the financial needs of households through appropriate channels concurrent with full explanations of the risks. finally, i would like to discuss policy issues related to inducing the creation of innovative financial services for individual customers. b. ensuring sound competition first, in order to encourage the creation of