sizable increase in fixed assets might not only cause concern about a deterioration in the central bank ’ s assets but also become a great impediment to the execution of monetary policy and money market operations. the bank therefore regards the problem to be a very serious one. it is extremely unusual by international standards for a central bank to provide funds to facilitate the operation of the deposit insurance system. in fact, there has been no such case in the major industrialized countries. therefore, the bank of japan believes that the dic, in raising funds, should first turn to the private sector and, for example, issue bonds, limiting its borrowing from the bank of japan to a bare minimum. needless to say, given the present condition of the japanese financial system, the bank of japan will not hesitate to provide short - term funds necessary for the smooth operation of the dic. however, for the reasons i have just described, i wish to stress that the dic should first seek to raise funds through means other than bank of japan loans, and make it clear that central bank money can be used only as temporary bridge funds. in order to avoid taking on long - term fixed assets, the bank of japan is deliberating whether to review the lending rate applied to the dic, which to date has been the same as the official discount rate, to reflect the lending rates charged by private financial institutions. conclusion the japanese financial system has been in an unprecedented crisis. this can be viewed as a painful process of transformation of the financial sector from a heavily protected to a competitive industry that generates new know - how and income. the path of this transformation will not be smooth. however, emerging moves on the part of financial institutions to undertake decisive restructuring and reorganization, and the fact that these institutions still possess sufficient potential in terms of management resources, including human resources, firmly convince me that it will not be too long before they revive as a fully competitive industry, in terms of quality rather than quantity, and driven by foresight rather than hindsight.

. 2. review of the bank ’ s on - site examination and off - site monitoring of financial institutions given the changing environment surrounding the financial industry and the bank ’ s experiences in dealing with financial institution failures, the bank recognizes the need to review its on - site examination and off - site monitoring of financial institutions from a broad perspective. it cannot be denied that examinations and monitoring by the bank during the “ bubble ” period were not fully successful in accurately grasping the financial condition of financial institutions or, based on their findings, in prompting the bank to take necessary steps to warn other parties of the situation. a central bank implements its policy through banking transactions. therefore, its on - site examinations and off - site monitoring, which are designed to accurately grasp the financial condition of individual transaction counterparties, are important starting points for execution of its policy. they are also essential in order for the bank to accurately identify the risks in the overall financial system and the possibility of their materialization, and thereby prevent disruptions in the financial system. in conducting on - site examinations, we will continue to place emphasis on the assessment of the financial strength and risk management systems of institutions. in addition, with a view to adapting to the changing environment surrounding financial institution management, the bank will become more flexible in determining the frequency of examinations and will carry out “ targeted examination, ” which focuses on specific areas of business and management. the bank also intends to follow the condition of financial institutions on a continuous basis through a closer integration of on - site examinations and daily off - site monitoring. the bank believes that the integration should also reduce the regulatory burden on financial institutions. the bank will also make public as far as possible the findings of its research and studies on the overall financial system based on the information obtained through examinations and daily monitoring. by doing so, we hope to assist the advancement of financial institutions ’ risk management techniques. 3. loans to the deposit insurance corporation now, i would like to add a word on the bank of japan ’ s lending to the deposit insurance corporation ( dic ). the bank ’ s lending to the dic has increased significantly reflecting the massive funding needs of the dic in proceeding with the resolution of the nonperforming - loan problem of financial institutions. moreover, it has become very likely that this loan exposure will be fixed for an extended period of time. the very function of a central bank is to implement monetary policy through the purchase and sale of short - term, liquid financial assets. a