The Diet passed a bill June 16 to create a state agency independent of the Finance Ministry for supervising the nation's financial institutions.

The tentatively named Financial Supervision Agency will be set up under the Prime Minister's Office and take over the monitoring and inspection responsibilities previously undertaken by the Finance Ministry.

The government-proposed bill cleared the Diet with support from the ruling Liberal Democratic Party and its two non-Cabinet allies -- the Social Democratic Party and New Party Sakigake -- and from other small parliamentary groups. Major opposition was voiced by Heiseikai -- an Upper House parliamentary group consisting mostly of members from Shinshinto and Komei -- along with the Democratic Party of Japan and the Japanese Communist Party.

The creation of the new watchdog body is part of an effort to reform the powerful ministry following its failure last year to properly deal with the "jusen" housing loan firm fiasco and scandals involving high-ranking officials in its ranks. The wide scope of the ministry's discretionary power in finance-related issues has been a magnet for both public and private criticism, and Prime Minister Ryutaro Hashimoto has indicated the head of the new agency will be selected from outside the ministry. In addition to banks, insurance firms and securities companies, the new watchdog will also oversee nonbank moneylenders and financial institutions affiliated to agriculture cooperatives nationwide. Currently, farm-related banks are under the jurisdiction of the Agriculture, Forestry and Fisheries Ministry, while nonbanks fall under the Ministry of International Trade and Industry.