Investor-protection system needs improvements.

A new deregulation step has allowed banks to sell stocks and foreign bonds, which carry greater investment risks than the financial products they traditionally handle. The revision of the securities and exchange law came into force on Dec. 1 and lifts the ban on banks offering brokerage services in partnership with securities companies.

With 1,400 trillion yen of individual financial assets, Japan has one of the biggest pools of private savings in the world. Most of the vast savings are held in bank and postal savings accounts or life insurance policies. Only 13 percent of the money is invested in securities, a much smaller ratio than the average in Europe and the 54 percent in the United States.

The latest revision is designed to encourage investment in stocks and bonds by making them more widely available at bank branches.

Banks have been a far bigger conduit for capital in Japan. For many years after the end of World War II, they served as efficient financial intermediaries, collecting money from individual depositors and lending it to businesses that need capital.

This ``indirect'' financing system functioned quite smoothly, contributing to Japan's postwar reconstruction and spectacular economic growth.

But the collapse of the bubble economy in the early 1990s left banks with a tremendous amount of bad loans and disrupted flows of money to companies. Many banks tightened their lending standards and called in loans of all kinds to shore up their capital bases. Banks suddenly become unreliable sources of capital for businesses.

Meanwhile, industries with greater volatility and risks, typically IT industries, have assumed more importance within the economy. Guaranteed bank deposits are not suitable sources of capital for such high-risk businesses.

Clearly, ``direct'' financing, or raising funds in capital markets by issuing stocks and bonds, is becoming increasingly important for the future of the economy. It is not surprising that the government, which has long been giving favorable treatment to bank deposits and postal savings in its economic policy, is now trying to promote a shift of private savings from deposits to securities investments.

Yet allowing banks to sell stocks and bonds, which could become worthless, naturally requires due caution and regulation. But Japan's legal infrastructures and supervisory regimes to protect investors are ineffective under the new environment of deregulation.

There are legitimate concerns that Japanese consumers may readily swallow the sales pitches of banks selling stocks and bonds since they generally see banks as conservative, trustworthy institutions.

Investors, of course, should know that they are investing at their own risk. But there must be reasonable restrictions on tactics and approaches to sell these instruments. The boundary between investor protection and self-responsibility should be made clearer.

Banks are in a position to gain insider information about companies through credit screening. They may find it difficult to resist the temptation to exploit this position in illegal or questionable ways. Banks may be tempted to pressure troubled corporate borrowers to issue shares and sell them to depositors to ensure they can collect their loans.

A government ordinance bans such practices. But the Japan Securities Dealers Association and the Securities and Exchange Surveillance Commission should keep a watch on banks' brokerage operations.

The public offerings of Nippon Telegraph and Telephone Corp. shares in the late 1980s made stock investment familiar to many consumers. The result, however, was that many individuals who bought the popular NTT shares at high prices suffered massive losses later.

Consumers should never forget that investing in stocks and bonds carries large risks-no matter who sell them.

--The Asahi Shimbun, Dec. 20(IHT/Asahi: December 21,2004)