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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
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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
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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.
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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.
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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
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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.
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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
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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.
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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
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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.
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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.
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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.
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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.
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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)