change further, there will be increased importance of fund demand associated with corporate rehabilitation and realignment such as m & a finance and dip finance and of fund demand from emerging companies that challenge new areas. moreover, needs for asset management mainly by elderly people are expected to diversify and increase. changes in business models for globally active major financial institutions third, business models of globally active major financial institutions might change. specifically, the originate - to - distribute business model that had been actively used prior to the crisis will relatively decrease in number and the proportion of commercial banking business that put more emphasis on the relationship with customers is likely to increase : that is called “ back to basics. ” moreover, as business regulations such as the volcker rule will be implemented and regulation and supervision will be reviewed in order to restrain “ too - big - tofail, ” it is likely that the moves toward mere scale expansion and toward excessive risk - taking will be restrained. in terms of funding, as awareness about liquidity risk heightened considerably through the experience of the financial crisis, more emphasis would be put on retail deposits, which have more stability than short - term wholesale funding such as repo transactions. such changes in business models of globally active major financial institutions could have an impact on the business models and the competitiveness of japanese financial institutions. b. future of japan ’ s financial system : macro perspective i will next touch on how japan ’ s financial system should be in the future from a macro perspective, namely, a perspective of financial system structure. needless to say again, japan ’ s financial system has long been characterized by financial intermediation centering on banks. in this situation, from a perspective of improving the functioning and stability of the financial system, many have argued as follows. it is desirable to have not only bank - based financial intermediation but also financial intermediation through the capital market, inclusive of the so - called market - based financial intermediation. to that end, it will be necessary to increase the supply of risk money and eventually enhance the diversification of households ’ asset investment. in fact, many policy measures have been taken to bolster such moves, including enhancement in market infrastructure, improvement in market transparency, and investor protection. if we revisit the discussions based on the experience of the recent crisis, it can be summarized as follows. first, the complementarity of functioning between banks and capital market is important. while the functioning of corporate bond and cp markets declined significantly

hirohide yamaguchi : challenges for japan ’ s financial system after the financial crisis speech by mr hirohide yamaguchi, deputy governor of the bank of japan, at the symposium co - hosted by the university of tokyo and the development bank of japan, tokyo, 10 december 2010. * * * introduction it is my great honor to have an opportunity to speak at a symposium co - hosted by the center for advanced research in finance, the university of tokyo, and the research institute of capital formation, development bank of japan. while the global financial crisis that erupted about two years ago, triggered by the failure of lehman brothers has not been completely over, the situation has significantly improved. progress has also been made in establishing an international framework for preventing the recurrence of the recent global crisis in the future. meanwhile, japan ’ s financial system has been relatively stable, compared with that in the united states and europe, but some challenges have become clear as the effects of the crisis reached here in various forms. in those circumstances, it is indeed topical to discuss today how the future of japan ’ s financial system should be, and i am looking forward to the discussions by the experts. for my part, i will briefly review the financial crisis and talk about the future of japan ’ s financial system and challenges for japanese financial institutions. i. global financial crisis and japan ’ s financial system a. the international financial system after the lehman shock these two years following the failure of lehman brothers have been indeed a tumultuous period for the global economy and the international financial system. following the failure of lehman brothers, a financial crisis erupted on a global scale, and the global economy deteriorated simultaneously and rapidly. subsequently, due to the effects of exhaustive policy responses by the governments and central banks, the global economy gradually started to recover around the spring of 2009 and profits and funding conditions of major u. s. and european financial institutions improved significantly. however, against a backdrop of european fiscal problems including those in greece and ireland as well as heightened uncertainty about the future of the u. s. economy, there have been phases in which financial markets have become unstable again since the spring of 2010. in the united states and europe, amid continued balance sheet adjustments, bank lending has been sluggish and credit costs have been somewhat at high levels. the international financial system is still in a fragile state. b. effects on japan ’ s financial system looking at the impact of the global financial crisis on japan