Supervisory reform in Japan

Given the current malaise in the Japanese banking sector and the failure of Japanese authorities to take speedy and appropriate action to address the situation, investors' confidence in Japanese financial institutions is at a very low ebb. Under pressure from both home and overseas, however, a new supervisory framework is emerging which should serve to increase the cost‐effectiveness of banking supervision in Japan. This paper explains what the new supervisory framework entails and makes suggestions as to how the cost‐effectiveness of policy could be yet further enhanced.