are assessed, there is a possibility that the amount of risks increases. under such circumstances, it is necessary to secure corresponding capital. many regional banks have already built up capital well exceeding the amount of risks they have calculated. that may suggest that those banks have implicitly prepared for the risks associated with regional commitment. however, if the risks remain vague, the improvement in returns cannot be hoped for. clear recognition of the risks associated with regional commitment would in turn allow regional banks to take measures with respect to returns. for example, to the firms with poor business performance, early support for business revitalization can be made, which could improve their cash flow and lead to higher net interest income for regional banks. for loans that have become " pseudocapital ", regional banks can act as an intermediary to invite external risk money and thus earn fee income. selection and concentration of business operations second, financial institutions should check whether the services they provide have a comparative advantage and need to limit the extent and to adjust the method of resource allocation accordingly. as i explained earlier, in the case of financial products and services that are commonly provided by many entities, it is difficult for the entities to pull out from unprofitable price competition. the comparative advantage of each financial product and service should be assessed, based on the non - price factors such as the ability for banks to reinforce brand potential, to offer solutions to customers, to collect non - public information, and to judge the growth potential of each product line. it is also necessary to check whether the combination of prices and the quality of financial services could be refined and moreover to address the most appropriate channel for providing such services. having done that, financial institutions need to draw the line between the operations where more resources should be allocated and those that should be scaled down or should be done with higher efficiency. they then need to come up with a specific action plan to carry out such management decisions. it is not easy to specify the business areas that have a big comparative advantage since different financial institutions face different business environments and have different characteristics. in general, however, it is effective to explore the possibility of the added value by focusing on the nature of management resources. for major banks, for example, comparative advantages may arguably lie in a wide branch network, a large network of payment and settlement systems, a solid customer base centering on large firms, the diversity of affiliate companies and personnel, the strength to build large portfolios with diversified risks, and its business

are intended to improve banks'profitability through stronger governance by shareholders and market participants as well as corporate governance within the bank still appear to be limited. problems regarding prolonged low profitability i know other views, too. one might say that a narrow interest margin is a result of the reimbursement of profits to customers and many stakeholders are still tolerant of the low profitability. that view suggests that even if the profitability of financial institutions remains low, it may not pose a problem for the time being, and moreover that the low profitability of financial institutions may support japan's economy through low borrowing costs. however, should the low profitability of japan's overall financial institutions continue, it could raise concern in the following two respects. first, the future vitality of japan's economy remains concern. the low profitability holds true not only for the financial institutions but also for many other firms in japan. currently, however, it is becoming increasingly difficult for businesses that only provide low valueadded products and services to survive in the global economy. for a country's economic development, the sectors with high productivity and potential for growth need to play an active role. and it is essential that risk money is channeled to such sectors without hindrance, and for that purpose, the limited resources on the part of financial intermediaries should be allocated efficiently and concentrated in the areas with highly added value. therefore, if financial institutions do not reinforce the provision of higher value - added financial services and support firms exploring new business opportunities, the economy's future may look grim. of course, while active overseas financial institutions could play a complementary role in reinforcing the intermediary function, they might not be able to participate aggressively in areas such as sme financing where the extent of disclosure is relatively limited. second, securing japan's financial stability over a longer period also is an issue. periodical earnings are the fundamental source of strengthening a bank's capital base. raising additional funds from the capital market is, of course, an option, but such funding can be done only if the profitability and the potential of the business are attractive to investors. therefore, should the low profitability continue, there may not be sufficient capital in the medium to the long term to counter an increase in credit costs in case of an economic downturn, and accordingly the stability of the financial system may be put in jeopardy. 3. measures to enhance the profitability of financial institutions enhancing the profitability of