The 100-odd regional banks scattered across Japan might look a bit like smaller, sleepier versions of the country's ten or so giant city banks. Like the giants, regional banks are struggling to clean up bad debts, and weak ones are going bust in growing numbers. Still, these days the stronger regional banks look a lot better than their big-city rivals. Their capital-adequacy ratios match those of the bigger banks, whose capital, unlike that of regional banks, is padded with layers of public funds. Because regional banks are relatively small lenders to the country's biggest borrowers, they can reduce their exposure to big problem borrowers more easily than can larger banks under political and moral pressure to keep on lending. Shizuoka Bank, perhaps the best regional bank, has a financial-strength rating from Moody's that is six notches higher than that of Bank of Tokyo-Mitsubishi, the strongest city bank. Fukuoka Bank, the biggest bank in Kyushu, a large island in the south, was one of the first banks aggressively to write down bad debts last year. Regional banks are innovative, too, in sometimes surprising ways. Hiroshima Bank, in south-west Japan, is an expert on weather derivatives. Its latest creation is a humidity derivative for a company that makes throat lozenges, as a protection against weak sales during humid spells.
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