BOJ MONETARY AND ECONOMIC STUDIES • VOL.12 NO.I • JULY 1994 Regulatory Arrangements, Financial Stability, and Regulatory Reform

What can be learned from the experience of the past decade or two about financial regulation, supervision, and deposit insurance or a financial safety net? Is there a better way to provide safety and soundness in the future than in the recent past? Does financial regulatory policy conflict with monetary policy? Commercial banks, building societies, investment banks, and insurance companies in many countries have been under stress. The precise problems, patterns and outcomes differ across countries, but in several countries many financial firms failed, merged, or restructured. Many received an infusion of government capital. Some examples are the thrift bailout in the United States, the Japanese pension funds ' purchases of common stock, and the Swedish government's investment in bank equity to prevent insolvency. Others could be added. The form and extent of regulation and supervision differ across countries as do the lending and investment powers of banks and financial institutions. Hence any lessons to be drawn are general not specific. One general lesson stands out: In many countries regulation and supervision did not prevent sizable losses by the banks and the public. Although quantitative losses differed from country to country, Nakajima and Taguch