Regional financial institutions should consolidate across geographical boundaries to help revive the economy, lawmaker Yasuhisa Shiozaki of the ruling Liberal Democratic Party said.

To strengthen rural areas, the nation should give priority to financial restructuring, said Shiozaki, 62, vice chairman of the LDP’s Policy Research Council.

“We need a financial sector that can support the vitality of industries and companies,” he said in an interview Tuesday.

There are more than 500 local financial institutions nationwide, including 64 first-tier regional banks and 41 smaller, second-tier lenders, according to the Financial Services Agency’s website.

Prime Minister Shinzo Abe, whose government cemented control of the Diet with its Upper House election victory Sunday, is expected to present a legislative growth strategy later this year to accompany monetary and fiscal stimulus.

“I don’t understand why regional financial institutions have to stay within their own prefectures at a time when the economy expands beyond geographical boundaries,” said Shiozaki. “They should branch out, or they simply won’t be able to catch up with the real economy.”

Little headway has been seen on realigning local financial institutions, in part because shareholders have been silent about their business management, he said.

Shiozaki, a former chief Cabinet secretary, cited Fukuoka Financial Group Inc. as an example of a successful merger of regional banks. He declined to identify potential future tie-ups between local lenders.

Fukuoka Financial, the nation’s second-biggest regional bank by assets, was created in April 2007 after Bank of Fukuoka Ltd. paid some ¥90 billion to purchase Kumamoto Family Bank Ltd. The group, based in Kyushu, agreed a month later to buy Shinwa Bank Ltd. for ¥76 billion.

“Restructuring and consolidation is an option for regional banks. But at the end of the day, that’s a managerial decision for individual banks and it doesn’t make sense to let the government take the lead,” Fukuoka Financial President Masaaki Tani, also chairman of Japan’s main regional bank lobby group, said in an interview July 18.

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