Could we be seeing the beginning of the endgame for Japan's long drawn-out banking crisis? The appointment of a tough- talking regulator, who promises reform or death for the country's banks, has panicked investors. A spiral of corporate bankruptcies, lay-offs and reduced spending is feared. Financial Services Minister Heizo Takenaka wants tough disclosure rules to force banks to reveal the true extent of their bad loans. Removing the veil of secrecy means nationalisation or failure is the only option for the worst-capitalised banks. For the rest, the government loan-collection agency is likely to increase its purchases of bad loans in what amounts to a taxpayer bailout. The new minister appears to favours the use of public funds so long as reform of the banks is permanent. And that is the 64 trillion yen question. Four years ago, a large-scale bailout of banks was touted as the answer to the country's financial malaise. Instead, deflation intensified, bad debts worsened and the problem simply got bigger. Japan's economic and political system is hardwired to resist reform and protect special interests. Influential firms, such as giant retailer Daiei, have in the last year been bailed out despite deserving to fail. Public resistance to further public rescues is high and Mr Takenaka faces huge scepticism that this latest effort is anything other than a further exercise in padding the interests of the banks and their big clients. The difference is that with the Nikkei-225 at a 19-year low and government debt at a conservatively estimated 140 per cent of gross domestic product, many doubt that Japan can again defy gravity by pumping up stock prices and artificially improve bank's financial health. The flashpoint will inevitably come in the government bond market, where investors are already expressing disquiet about its ability to service its debt given the seeming inevitability of a gargantuan bank bail-out. Mr Takenaka's apparent shock therapy carries great risks. Japan's much feared spiral of bank failures and bankruptcies could yet intensify. Unfortunately, there is no alternative. Japan's investors have lost faith in banks, but still trust their government. Reform must be grasped before that fails.