Daiwa Institute of Research: Cross-Prefectural Restructuring of Regional Banks

The Daiwa Institute of Research published a paper titled "Cross-Prefectural Restructuring of Regional Banks: The Reorganization of Local Economic Zones at its Foundation" on July 11, 2025, providing a detailed analysis of the ongoing restructuring of Japan's regional banking sector, and arguing that these realignments are fundamentally driven by the reorganization of underlying local and regional economic zones. The author posits that the consolidation of regional banks, particularly the significant reduction in the number of "second-tier regional banks," is not a random process but follows distinct patterns that mirror shifts in economic power and integration.

The core arguments presented are:

1. Consolidation of Second-Tier Banks: The sharp decline in the number of regional banks since 1990 is primarily attributable to the absorption and merger of second-tier regional banks (第二地方銀行, Daini Chihou Ginko).
2. Intra-Prefectural Dynamics: Most restructuring occurs within prefectural boundaries, often reflecting a trend of economic centralization towards the prefectural capital. This leads to "intra-prefectural cross-border" mergers, where banks from different economic districts within the same prefecture combine.
3. Cross-Prefectural Integration: A smaller but significant number of "cross-prefectural" (越県, ekken) mergers and integrations are occurring. These are not arbitrary but are based on the existence of larger, "regional bloc economic zones" (地域ブロック経済圏) centered around major hub cities like Fukuoka and Osaka.
4. Functional Roles and Risk-Sharing: The paper introduces a crucial concept of a functional division of labor between the top-ranked bank (#1 bank, or 地域一番行) and the second-ranked bank (#2 bank, or 二番手行) within an economic zone. The #1 bank often acts as the stable provider of the local payments infrastructure, while the #2 bank plays a complementary role in financial intermediation, often serving higher-risk borrowers. The paper warns that consolidation threatens this delicate risk-sharing ecosystem, which is vital for the diversity and sustainability of local economies.