measures such as merger if they are not likely to survive on their own from a medium - to long - term perspective. as previously mentioned, although the number of financial institutions has already decreased substantially, further integration should not be ruled out if necessary. the government recently announced it would consider merger promotion measures and i hope they will be implemented expeditiously. thorough preparation is also needed to avoid credibility in the financial system being substantially eroded or system stability questioned in the process of disposing of npls. the idea that appropriate measures, including the injection of public funds, might be necessary in such a case is what i have repeatedly advocated. at the same time, the bank, together with government measures such as capital injection, is ready to discharge its responsibility as lender of last resort in providing liquidity when deemed necessary to maintain financial system stability. introduction of fixed asset impairment accounting my bottom line thinking is as i have explained so far, and now i would like to consider challenges for financial institution management from different viewpoints such as the accounting system, which is a financial system infrastructure, and also strengthening the profitability of financial institutions. the precise amount of npls has always been a matter of debate, and thus various improvements have been made such as clarification of the definition of npls and also the recognition process centering on the introduction of self - assessment. however, for financial institutions to precisely grasp detailed conditions of borrowers, it is imperative that balance sheets correctly reflect their financial conditions. the improvement of accounting rules is quite an important task in order to pursue dialogue between financial institutions and borrowing firms. although japan ’ s accounting rules recently underwent substantial change because of, for example, the introduction of mark - to - market accounting for financial products, there still remain challenges, especially the introduction of fixed asset impairment accounting. when the profitability of fixed assets is lower than anticipated, fixed asset impairment accounting rules require firms to recognize differences from initial plans as losses, thereby aiming at narrowing divergence between balance sheets and the actual business conditions of firms. the business accounting council released an exposure draft this april and fixed asset impairment accounting rules are scheduled to be introduced from fiscal 2005. the introduction of the new accounting rules will impact corporate management, but in view of their significance i hope for their early introduction following thorough discussion. it goes without saying that such accounting principles are also applied to financial institutions. because of balance sheet regulations, especially capital adequacy requirements, accounting rules have extremely important meaning for financial

council on economic and fiscal policy 2. to foster such new developments and ensure that they bear fruit, it is important not only to promote deregulation decisively, but also for private firms to take advantage of new business chances utilizing their management resources to the extent possible. now, let me move to another important issue, that is, the financial system problem. recent developments and challenges facing the financial system current assessment of the financial system the blanket guarantee for time and savings deposits was terminated in april this year and will be totally terminated for all deposits from april 2003. simply put, the world will shift from perfect protection of depositors with the public sector shouldering the burden to self - responsibility in principle, and, in this sense, fiscal 2002 will be a turning point for japan ’ s financial system. it is ten years since the first bankruptcy of a financial institution was resolved by deposit insurance in april 1992. six years have passed since the framework of government guarantee was introduced to the deposit insurance system, and four years have passed since a framework to cover losses was established by the government. in the meantime, deposits with failed financial institutions have been fully protected. in addition, various arrangements have been devised for the sake of financial system stability such as the injection of public funds to financial institutions and establishment of safety nets with respect to securities and insurance companies. the development of such arrangements has, of course, been closely related to various problems associated with the bursting of the bubble and many financial institutions being forced to fail. in fact, the number of financial institutions - banks, shinkin banks, and credit cooperatives - has decreased by more than 30 % from about 1, 000 ten years ago to less than 700 at present, partly reflecting the progress of integration such as mergers. in our estimation, the amount of npls to be disposed of by financial institutions, that is the sum of write - offs and loan - loss provisioning, has reached more than 80 trillion yen over the past ten years. this figure suggests that financial institutions have disposed of a substantial amount, more than 17 % of the loans they held ten years ago. stated differently, with the npl problem unresolved, japan ’ s financial system has significantly contracted in terms of the number of players and volume of assets. however, despite the painful experience of the past ten years, we have yet to restore credibility in our financial system that still receives harsh criticism from both home and abroad. financial statements for fiscal 2001 in fact, all major banks went