From Pooling Bank Balance Sheets to Relaying Capital: A New Model for Regional Finance in Japan

Regional banks may be entering a new phase of financial intermediation—one in which their competitive advantage depends not only on how much risk they can carry on their own balance sheets , but on how effectively they can originate investable opportunities, connect them with the right capital, and recycle that capital into the next project.

Unbundle the Functions, Not Simply Combine the Banks

In last week’s JAMP Perspective, I asked a question:whose capital can a bank’s credit judgment mobilize? 

A bank’s competitive advantage does not lie only in the size of its balance sheet. It also lies in its ability to produce information: knowledge accumulated through long-term relationships with companies, the ability to identify deals at an early stage, and expertise in underwriting, structuring, and monitoring. If regional banks can put those capabilities to work not only for their own deposits and capital, but also for third-party capital, the nature of regional finance could change significantly.

Soon afterward, SBI Shinsei Bank announced a particularly interesting initiative. On August 5, 2026, it said it had entered into a Regional Growth Investment Partnership Agreement with 14 regional financial institutions, with around 10 more expected to join. The framework is intended to support collaboration on large and sophisticated financings, including LBOs, business succession, renewable energy, data centers, logistics, and urban and regional development.

Under the arrangement, SBI Shinsei Bank brings relationships with sponsors and funds, investor networks, sophisticated structuring capabilities, and syndication functions. Participating regional banks bring local customer relationships, knowledge of regional industries, credit assessment capabilities, and funding capacity. Importantly, regional banks are not expected to participate only as lenders after a deal has already been structured. Depending on the transaction, they may become involved as joint arrangers or co-arrangers from the initial review, terms design, and risk-analysis stages.

One way to describe this initiative would be as an effort to bring regional banks together into something resembling a “fourth megabank.” I think that is a valid interpretation. But I also see something more structurally interesting.

Syndicated lending itself is not new. Banks have long shared the financing of large transactions. What is more interesting here is the attempt to unbundle financial-intermediation functions that have traditionally been vertically integrated inside a single bank and recombine them across multiple institutions.

A bank originates a deal, engages with the company or sponsor, analyzes the risk, structures the financing, provides funding, holds risk, and monitors the borrower afterward. Major banks have traditionally dealt with large transactions by keeping most of these functions inside one large organization. The SBI Shinsei framework instead appears to combine the respective strengths of different institutions.

If so, the essence is not to turn a collection of smaller banks into one larger bank. It is to unbundle the functions that used to sit inside a bank, allocate each function to the party best positioned to perform it, and then reconnect those functions. I see this as one possible new form of horizontal specialization in regional finance.

After the Funding Constraint Comes the Investable-Asset Constraint

This matters for reasons that go well beyond the banking industry.

Japan’s Basic Policy on Economic and Fiscal Management and Reform 2026 and the Japan Growth Strategy, both approved by the Cabinet on July 21, 2026, set out a policy direction centered on substantial public- and private-sector investment across 17 strategic fields. The government has also positioned annual domestic private-sector capital investment of ¥250 trillion by fiscal 2040 as a new public-private target. Roadmaps covering 62 major products and technologies currently envisage more than ¥370 trillion of cumulative public and private investment, primarily through fiscal 2040.

Not all of that investment will take the form of regional development projects. But many of the targeted areas—cloud and data centers, green transformation and energy, storage batteries, logistics, ports, and other infrastructure—require substantial physical investment in particular locations. The direction is becoming clear: Japan is likely to see more large-scale, long-duration investment projects across the country.

The next bottleneck, therefore, may not simply be whether enough capital exists. It may be whether regions have enough investable projects—and the financial-intermediation architecture needed to absorb that capital.

In JAMP Perspective No. 343, I wrote that Japan’s effort to strengthen its asset-management industry should not become a piggy bank for public policy. A project’s policy importance and its investment merit are not the same thing.

Government can use subsidies, guarantees, subordinated capital, tax measures, and regulatory reform to improve the conditions under which private capital can participate. But private investors still need to make their own independent investment decisions.

That is why the financial system needs a mechanism capable of receiving the large investment pipeline now being contemplated: finding regional companies and projects, improving their commercial viability, assessing their risks, and turning them into investable assets that third-party investors can evaluate on their own merits.

What is needed is not a mechanism for replacing policy funding with private investment. It is a form of financial intermediation that can translate projects described in the language of public policy into assets that can be assessed in the language of investors.

Beyond Pooling Bank Balance Sheets: The Capital Relay

At least under the SBI Shinsei framework as currently announced, participating banks’ balance sheets remain the primary source of funding. Bringing more banks together expands the size of transactions they can collectively support.

But if the financing needs associated with green transformation, data centers, major infrastructure, regional development, and business succession continue to grow larger and longer in duration, adding more banks does not remove the underlying constraints. Banks still face limits arising from capital requirements, asset-liability management, large-exposure and concentration risk, and liquidity.

This is where I would like to take last week’s argument one step further, through the idea of a “capital relay.”

Here, I use “capital” broadly. I do not mean equity alone. I mean the different forms of funding that bear risk at different stages of a project—including bank loans, fund capital, and institutional capital from insurers and pension funds.

The underlying technique is not new. Project finance has long used refinancing to replace development- and construction-stage financing with longer-term capital once a project stabilizes. Private equity and venture capital have exits. Loans can be sold in secondary markets.

The question is whether that relay can be designed deliberately—not as something that happens transaction by transaction, but as part of a new business model for regional finance.

At the project-formation stage, when business risk and information asymmetry remain high, banks with deep knowledge of the company and region, sponsors, specialist funds, and—where appropriate—public financial institutions may be best positioned to take the risk.

Once the business begins operating, governance and operating structures are in place, and its cash flows and risks can be assessed by outsiders, the asset can be passed to longer-term capital better suited to that stage of risk—such as insurers, pension funds, asset managers, and other funds.

If the bank and fund capital used at the earlier stage can then be recovered, it can be redeployed into the next project.

Increasing a region’s financing capacity, therefore, may not be only about how many assets one bank can hold until maturity. It may also be about how effectively scarce capital can be passed to the most appropriate holder as a project matures, then recycled into the next opportunity.

This also has implications for the economics of regional banking.

Instead of earning revenue primarily by holding loans on their own balance sheets for long periods and capturing the interest margin, regional banks may have greater scope to earn fees for the information-producing functions themselves: sourcing deals, structuring them, arranging financing, connecting them with investors, and continuing to monitor them.

A capital relay is therefore more than a balance-sheet management technique. It could broaden the regional bank profit pool from “earning mainly by holding assets on the balance sheet ” toward “creating opportunities and mobilizing the right capital.”

Where PEITs Could Fit into the Relay

This is also where the potential role of PEITs—investment corporations that invest in unlisted shares and similar assets—becomes easier to see.

A PEIT does not originate projects, nor is it a magic vehicle that makes development risk disappear. But once a company or project has matured to the point where outside investors can assess its business model, governance, and risks, a PEIT could potentially serve as one of the relay points between early-stage capital and longer-term third-party capital, provided the relevant investment can appropriately be incorporated into the PEIT’s portfolio.

Listing a PEIT does not make the underlying assets themselves liquid, and it does not automatically create sufficient liquidity in the investment units. But a listed vehicle may allow the long investment horizon required by the underlying assets to be partially decoupled from the holding horizon of each individual investor.

That, in my view, is the more important way to think about the potential value of a regional PEIT. The objective should not simply be to create a new “regional financial product.” The real question is whether it can become part of a capital-recycling mechanism that connects locally originated assets with long-term capital from inside and outside the region, while releasing early-stage capital for the next project.

From this perspective, it is also interesting that Sapporo Securities Exchange President Nagano has discussed research into regional PEITs, with renewable-energy projects and AI data centers among the possible underlying assets, while emphasizing the need for regions both to attract capital and to create mechanisms through which that capital can circulate.

Capital Can Move. Responsibility Cannot Become Blurred.

There is, however, a critical condition: capital can be relayed, but responsibility cannot be allowed to disappear somewhere along the relay.

We first need to distinguish between a risk that a bank does not want to hold and one that is difficult for a bank to continue holding.

An asset may be difficult for a bank to hold for a long period because of its duration, size, concentration, or regulatory capital cost. Yet for an insurer or pension fund with long-dated liabilities, or for a sufficiently diversified investment fund, the same asset may be a reasonable investment at the right price. That is one source of economic value in a capital relay.

By contrast, if a bank simply transfers to a fund or outside investor the deals whose credit quality it doubts and that it does not want on its own balance sheet, that is not more sophisticated financial intermediation. It risks becoming little more than a way of pushing risk out the door.

The more separated the party originating a deal is from the party ultimately bearing the risk, the more important the allocation of responsibility becomes.

Who originates the deal? Who actually manages or operates the business? Who makes the investment decision? Who values the asset? Who continues to monitor it? And if the project fails to perform, who bears which risk?

Creating a sophisticated financing structure does not automatically create a good investment. Without capable managers and specialist operators who can actually run regional companies, infrastructure assets, and projects—and take responsibility for the results—even an elegantly designed financial vehicle will not turn them into investable assets.

And when third-party capital is invested into a deal originated by a bank, that deal needs to be tested again on its own merits, independently of the bank. This becomes even more important when an asset manager affiliated with the banking group is involved.

An asset manager’s job is not simply to endorse the judgment of its affiliated bank. Its role is to reassess the asset from the investor’s perspective, determine whether the price adequately compensates for the risk, and retain the ability to walk away from the deal.

Sound valuation, conflict-of-interest management, appropriate risk retention by the originator, transparent disclosure, and independent investment decisions are therefore essential. Without them, connecting a project with third-party capital becomes simple risk transfer rather than better financial intermediation.

The important innovation, therefore, is not the new “box” itself. It is the design of both the capital flow and the allocation of responsibility—from project formation, investment, and business operation through the handoff to long-term capital and the reinvestment of the early-stage capital. That entire chain is financial intermediation.

A Broader Role for Regional Bank Asset Management Subsidiaries

Seen this way, the rationale for a regional banking group to own an asset management company also begins to look different.

Many asset management subsidiaries of regional banking groups have historically developed around the planning and management of investment trusts and the provision of products through their parent banks and related distribution channels.

But if the next challenge for regional banks is to connect the corporate information and deals they produce with third-party long-term capital, their asset management subsidiaries could potentially assume another role: translating a locally originated “deal” into an “investable asset” on which investors can make an independent decision, and serving as one of the relay points in the movement of capital.

There is no reason this function must always sit within a regional banking group. It could also be performed in combination with independent asset managers, private equity and venture capital managers, infrastructure managers, trading companies and specialist operators with project-development experience, and external professionals.

The objective should not be to put the bank, asset manager, operating company, and investor inside one corporate group. It should be to place functions and responsibilities where each party is best equipped to perform them.

This also changes how we might think about the meaning of “regional” finance.

Taking deposits locally and lending them to local companies will, of course, remain an important role for regional banks. But perhaps the “regional” character of regional finance should not be determined only by where the capital itself is located.

A regional bank can produce valuable information through its relationships with local companies, originate opportunities, turn them into investable assets, and then connect them with the capital best suited to bear the risk—whether that capital comes from inside or outside the region.

Moving capital from both inside and outside the region on the basis of information produced locally could itself become an important function of regional banking.

At JAMP, we have recently been holding detailed discussions with regional banks, local governments, and capital-markets participants about how regional companies and projects can be connected with third-party capital, how that capital can be recycled, and what role structures such as regional PEITs might play.

The operating infrastructure needed to structure and operate vehicles such as investment trusts and PEITs, and to connect them with capital markets where appropriate, forms one part of that discussion. But we do not believe that creating a new financial product or vehicle should be an end in itself.

Who originates the deal? Who operates the business? Who makes the investment decision? Who holds the risk? Who monitors it? What is each party paid for? At what stage is capital passed from one holder to another, and how is the recovered capital recycled into the next project?

Only when that division of functions and responsibilities has been designed can a financial “platform” truly work.

From Lending Capacity to Capital-Mobilization Capacity

Last week, I asked whose capital a bank’s credit judgment could mobilize. This week, I want to take the question one step further: does the same party really need to hold that capital from the beginning of a project to the end?

Japan is preparing for a potentially enormous wave of growth investment across the country. In that environment, the competitiveness of regional banks should not be determined only by the size of their deposit base or their remaining lending capacity.

The ability to turn locally generated information into investable opportunities, pass those opportunities to the capital best suited to bear their risks, and recycle recovered capital into the next project may become equally important.

Regional banks themselves may then be able to broaden their profit pools beyond the interest margin earned by holding loans. Deal sourcing, project formation, structuring, capital-market connectivity, and monitoring are all functions for which economic value can potentially be created and captured.

The question for regional banking may therefore shift from “How much money can we hold and lend?” toward “How many high-quality opportunities can we create, and how effectively can we mobilize the right capital behind them?”

The next stage of regional finance may be a move from pooling bank balance sheets to relaying and recycling capital.

Whether regions can build that architecture may help determine whether the coming wave of growth investment translates into genuine regional growth. I believe that beyond it lies a new model of financial intermediation for Japan’s regional banking groups.

FAQ

What does “capital relay” mean in regional finance?

A capital relay means matching different stages of a company or project with different sources of capital. Banks, sponsors, specialist funds, or public financial institutions may bear earlier-stage risks, while longer-term investors may take over once cash flows, governance, and risks become easier for third parties to assess. The capital released at that point can then be recycled into new projects.

Does a capital relay simply mean transferring bank risk to investors?

No. Its economic rationale depends on transferring assets because another investor is better suited to hold the risk—not because the originating bank believes the asset is poor quality. Independent investment decisions, appropriate valuation, conflict-of-interest controls, disclosure, and clear responsibility for monitoring remain essential.

What role could PEITs play?

A PEIT could potentially serve as one relay point for companies or projects that have matured enough to be evaluated by outside investors. It does not eliminate underlying investment risk, and listing does not guarantee liquidity. Its potential role is to connect longer-duration underlying assets with third-party capital while partially decoupling the assets’ investment horizon from individual investors’ holding periods.

How could this change the regional bank business model?

It could expand the source of earnings beyond holding loans and earning an interest spread. Regional banks may increasingly create value through sourcing, underwriting, structuring, arranging, connecting projects with investors, and monitoring them. The competitive question could shift from balance-sheet capacity alone to the ability to create investable assets and mobilize appropriate capital.

Author: Keiichi Ohara, President & CEO, JAMP Corporation
About This Article
This article is an adapted English edition of JAMP Perspective No. 347, originally written in Japanese by Keiichi Ohara and distributed on August 25. It has been edited and supplemented where necessary to make the discussion and its Japan-specific context clearer to readers outside Japan. It is therefore not a direct translation of the original Japanese newsletter.
This article is provided for informational purposes only and does not constitute investment advice or a recommendation regarding any financial product.