The Importance of Risk Management and Governance of Japanese Regional Banks in order to Enhance Shareholder Value

Japanese regional banks are expected to exercise their financing functions as well as their consulting functions based on risk management in order to contribute to the development of regional economies.First, this paper analyzes how Japanese regional banks set up management strategies and risk management policies in a consistent way, providing their four patterns of Japanese companies.Second, it reviews the risk management methods based on Basel I and Basel II, which enhance regional banks’ controlling of market, credit and operational risks effectively and efficiently. It also makes an analysis of the role of corporate governance, given the increase in foreigners’ share of stocks of regional banks.Finally, it makes a positive analysis that high levels of risk management methods in Basel I and II, and strong corporate governance (the share of foreigners relative to regional banks’ equities) contribute to higher shareholders values