REGULATORS around the world are contemplating higher walls between commercial banks and their investment-banking divisions. In Japan the opposite is happening. Last month the country’s Financial Services Agency (FSA) dramatically eased the regulations on how banks may interact with their securities arms, with sweeping implications for Japan’s financial markets.

The old system laid huge burdens on financial groups. It prevented bankers from suggesting services that were provided by the same firm but housed in a different unit. Foreign banks, lacking the same holding-company structures as domestic rivals, were the worst hit. Until recently, grouses an employee of a big bank, its Japanese unit generated more paperwork than the rest of its operations across Asia combined. Domestic firms also suffered. And a system designed to minimise risk increased it, says an executive. “If the country manager asks the head of the securities unit, ‘How’s business?’, he can’t say because he is in a different legal entity.” …