TOKYO (Reuters) - Japan's financial regulator will adopt a new rule for regional banks to guard against potential losses on bond holdings because of sharp interest rate swings, people with direct knowledge of the matter told Reuters on Thursday.
With their margins squeezed by the Bank of Japan's negative interest rate policy, regional banks have stepped up investment on assets vulnerable to interest-rate risk, such as foreign bonds.
Under the rule, from the fiscal year ending in March 2019, the Financial Services Agency (FSA) will consult with regional banks whose estimated losses on bond holdings exceed 20 percent of their capital to decide how to ease the situation, the sources said.
Details of the new regulation, which will enable the FSA to issue a business improvement order to the concerned financial institutions, are set to be unveiled soon to solicit opinions, the sources added.
FSA officials were not immediately available for comment.
Earlier on Thursday, the Nikkei business daily said the step aimed to prevent regional banks from relying too much on revenues from bond investment and nudge them to boost lending.
Reporting by Takahiko Wada and Leika Kihara; Writing by Kiyoshi Takenaka; Editing by Shri Navaratnam and Clarence Fernandez