Global financial markets have seemingly nudged the government toward undertaking a move it would not have dared consider just one year ago -- suggesting that taxpayers' money be used to restore faith in the financial sector.

The same day Yamaichi Securities Co. succumbed to market pressures that made it nearly impossible for the brokerage to secure operating funds, Finance Minister Hiroshi Mitsuzuka voiced his resolve to seek "further policy measures" to secure market stability and protect clients at financial firms.

However, neither Mitsuzuka nor any other senior Finance Ministry official mentioned "public funds," a phrase that elicits unpleasant memories with taxpayers who were angered last year over the infusion of public money to help dissolve seven "jusen" housing lenders.

"(The use of public funds) is naturally one option to consider when we review all policy choices, and I am most attentive to the ongoing debate on the matter in the Diet and among the public," he said.

But ministry officials said nothing was concrete and ministry deliberations will continue. "I think we first need to start from a review of why the public was so critical of the jusen scheme," a high-ranking Securities Bureau official said when the subject of public money surfaced last week.

With the implementation of the ministry's brainchild, the "Big Bang" financial system deregulation, it is becoming increasingly likely that many weaker domestic financial institutions will be unable to survive the competition and market forces. In that event, the government will need to make a clear commitment to protect customers if confidence in the banking system, and indeed the entire economy, is to be restored. In fact, reassurances from Mitsuzuka and the Bank of Japan that all assets will be protected have been key factors in preventing panic at tellers' windows and in the financial market.

Toru Nakakita, professor of economics at Toyo University, was a staunch opponent of the jusen liquidation scheme, but he said that this time, the use of public funds to protect depositors is necessary to maintain financial stability. "The furor over the jusen affair stemmed from the fact that these firms did not have deposits, they had not yet failed and there were no efforts to restructure their operations," he said.

The jusen fiasco led administrators to draw up legislation this past summer that raised deposit insurance premium rates for financial institutions, while simultaneously promising that all deposits would be protected until March 2001, when a ceiling of 10 million yen per account will be put into effect.

However, financial liberalization seems to be progressing more rapidly and less predictably than regulators initially thought, as the spate of financial failures this month indicates. "International experience, including our own, suggests that it is often necessary to infuse public funds" to restore the health of the financial system, U.S. Deputy Treasury Secretary Lawrence Summers said in Tokyo last week. But the issue of public money is not the only sticking point in the debate.

Many observers say existing frameworks, such as deposit insurance for banks, a compensation fund for brokerages and payment guarantees for insurers, need to be reviewed because they are unlikely to be able to offer full protection of customers' assets up to March 2001, as promised by the government. "The government needs to first acknowledge that it was wrong to infuse public money into the jusen, then say it would use taxpayers' money to improve deposit protection," Toyo's Nakakita said.