Japan's FSA tells regional banks to curb investment losses -sources

TOKYO, May 18 (Reuters) - Japan’s financial watchdog has instructed regional banks to curb potential losses on their foreign bonds and other securities, including by selling some of those investments, two people with direct knowledge of the situation said, in the regulator’s strongest step to shore up smaller lenders’ financial health.

The Financial Services Agency has recently asked the banks to limit the unrealised losses on their securities to within the amount of the profits on their core lending business or equity capital, the sources told Reuters.

Japanese banks are currently not required to book losses on their securities investments until they are realised. The rare move by regulators underscores a desire to discourage smaller lenders from making risky investments, which could further hurt their already-weak financial health.

A spokesman for the FSA declined to comment. An official for the Regional Banks Association of Japan declined to comment on member banks’ investment strategies. (Reporting by Taro Fuse and Takahiko Wada, Writing by Junko Fujita Editing by William Mallard)