Banks should use a government-backed share purchase program to reduce stock holdings that caused $10 billion of losses at Japan's three biggest lenders last year, the country's top financial regulator said.

"A bank's financial standing is linked to its holdings of investments, such as shares, and I'd like to see forward-looking risk controls," Katsunori Mikuniya, 58, who became commissioner of the Financial Services Agency on July 14, said in an interview. "The Banks' Shareholdings Purchase Corp. is now available, and we'd like banks to use it."

A 28 percent rally on the Nikkei 225 stock average since the April 1 start of the business year may give banks a chance to sell stocks at a profit.