Nonbanks should be allowed to secure funds from capital markets through a wider range of sources, including such currently banned means as the issue of bonds and commercial papers, according to a report released May 16.

The report also calls for a blanket legal framework for consumer protection that covers all who use financial institutions.

The paper, drawn up by a private study group under the auspices of the head of the Finance Ministry’s Banking Bureau, says that nonbanks are playing an increasingly important role in the economy as consumers’ financial needs diversify.

At the same time, with the prolonged economic downturn, there has been a rise in the number of individuals filing for personal bankruptcy as they become unable to pay off their snowballing loans.

The paper calls for a revision of current laws that prevent nonbanks from securing funds for their loans by issuing bonds, limiting such issues to banks. The environment in which nonbanks operate has now changed, helped by improvements in consumer protection and sufficient funds for corporations, it says.

Nonbanks, provided they take measures such as sufficient disclosure of information and risk management, should now be allowed to issue bonds and commercial papers, the panel concluded.

The paper is to be submitted to the ministry’s Financial System Research Council for further debate later this month, and is expected to be incorporated in the council’s report on a wider range of banking deregulation measures due out in June as part of the “Big Bang” financial reforms.

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