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regional revitalization

The First Meeting of the Financial System Council's Working Group on Strengthening Regional Financial Power

Norbert Gehrke

Norbert Gehrke

— 8 min read
The First Meeting of the Financial System Council's Working Group on Strengthening Regional Financial Power

The first meeting of the Financial System Council's Working Group on Strengthening Regional Financial Power was held on Friday, September 5, 2025, focusing on the evolving role of regional financial institutions in Japan's regional revitalization efforts and the profound implications of accelerating population decline on urban and regional development.

Regional financial institutions are being encouraged and enabled to expand their business scope and consulting functions to support local businesses, including through M&A, business succession, and future-oriented lending.

However, these institutions face a challenging operating environment marked by stagnating deposits, increasing non-competitive costs (e.g., cybersecurity, AML), and emerging signs of business performance bifurcation.

Concurrently, Japan is experiencing an accelerating demographic decline, with projections indicating a significant reduction in total population and a dramatic shift in urban distribution, leading to a concentration in fewer, more distant large cities and the potential for widespread "ghost towns."

This necessitates a strategic "triage" approach to regional policy, moving beyond a one-size-fits-all "local revitalization 2.0" to a focused strategy of consolidation, smart growth, and planned contraction for certain areas.

I. Regional Financial Institutions: Evolving Role and Challenges

1. Initiatives for Regional Revitalization

Regional financial institutions are being actively supported and encouraged to expand their involvement in regional revitalization. This includes relaxation of business scope regulations through amendments to the Banking Act (2016, 2021) that have eased restrictions on the types of businesses banks can invest in or operate through "banking business advanced companies" (銀行業高度化等会社), allowing for:

  • Equity ownership exceeding 5% (with approval).
  • For "certain advanced services" (一定の高度化等業務), the approval criteria have been relaxed, allowing up to 50% equity ownership without approval, and even 100% for non-listed regional revitalization businesses.
  • "Certain advanced services" include FinTech, regional trading companies (原則、在庫保有、製造・加工なし - "in principle, no inventory holding, manufacturing, or processing"), disability employment promotion special subsidiaries, adult guardianship, registered temporary staffing, sales of proprietary apps/IT systems, data analysis/marketing/advertising, ATM maintenance, and digital local creation/sustainable society building. These are services where "banks and bank groups are expected to play a significant role" and are "socially reasonable given their connection to financial services," without "significant risk of other business risks, abuse of dominant position, or conflict of interest."

Promoting Support for Business Challenges

Shift from COVID-19 liquidity support to "full-scale management improvement and business revitalization support."

  • Proactive and early engagement with businesses showing "signs of change," offering solutions, and collaborating with credit guarantee corporations and other financial institutions.
  • Strengthening consulting functions, including offering comprehensive solutions leveraging public schemes and continuous monitoring.

Promoting M&A Support

Increased expectation for financial institutions to actively engage in M&A support, including Post-Merger Integration (PMI).

  • Amendments to supervision guidelines (effective Oct 1, 2024) clarify expectations for financial institutions to explain how management guarantees can be lifted when principal shareholders change, addressing concerns that such guarantees hinder M&A and business succession.

Promoting Business-Oriented Lending

Emphasis on "business-oriented lending" (事業性融資) that focuses on the growth potential and future prospects of businesses, rather than solely on real estate collateral or management guarantees.

  • This is crucial for "start-ups lacking tangible assets" and "businesses hesitant to undertake bold business development due to management guarantees."
  • Promotion of schemes like "corporate value collateral rights" (企業価値担保権) to facilitate financing based on business future prospects and strengths.

Examples of Local Revitalization Initiatives

Regional trading companies supporting branding and interior design orders for traditional crafts.

  • On-demand transportation services in depopulated areas.
  • Accompaniment support for SMEs with high technical capabilities, including strategic advice and subsidy acquisition support.
  • DX promotion for local craft manufacturing, introducing cloud systems for process management.
  • PPP/PFI-based urban development projects.

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