In order to prevent failure of individual financial institutions from spreading through the financial system, it is necessary to have a quick and smooth resolution framework. In addition, various prudential schemes are needed for maintaining the soundness and confidence of the entire financial system. In Japan, a deposit insurance system was established at a relatively early stage in 1971.
However, other key financial safety nets were introduced belatedly after Japan faced and dealt with the financial crisis caused by the burst of the bubble. The main examples of these safety nets included the resolution mechanism for financial institutions, the mandatory disclosure scheme on nonperforming loans, accounting standards for the adequate write-off of nonperforming loans, and the prompt corrective action framework (Slide 14).