Fresh off a big election win on Sunday, Japan’s Prime Minister Shinzo Abe pledged an Abenomics reboot to boost competitiveness and living standards. Why not start by shaking up regional banks?

These sleepy lenders are, after all, the place where the Bank of Japan’s liquidity goes to die. That’s a significant problem when BOJ easing forms the core of Abe’s five-year-long assault on deflation and malaise.

For decades now, Japan’s roughly 100 proud regional lenders – some centuries old – with more than US$2 trillion on deposit avoided modernization.

They service sparsely-populated cities and towns far from the glare of Tokyo’s neon signs and BOJ headquarters. They also jealously protect their independence, walling the industry off from the consolidation for which analysts long clamored.

It leaves Japan among the most overbanked developed economies and deadens the multiplier effect the BOJ needs to revive inflation.

Regional players are sticking with a failed business model: ultralow fees and commissions relative to US and European lenders. Instead, banks compete for borrowers.

That’s become exponentially harder in the era of zero interest rates – or negative, in some cases. Add in too many banks vying for too few borrows in a fast-aging nation and you can understand why BOJ Governor Haruhiko Kuroda is getting antsy.

In recent days, Kuroda raised concerns about weak profitability at the regional lenders. That seems like central-banker speak for it’s time for a regional-lender culling for the good of Asia’s second-biggest economy.

Abe could use his new electoral mandate to catalyze the process.

Earlier this year, the Financial Services Agency urged regional banks to devise new ways to make money. That, too, sounds like code for please consolidate.

Earlier this year, the Financial Services Agency urged regional banks to devise new ways to make money. That, too, sounds like code for please consolidate.

Abe could, for example, offer tax incentives to banks joining forces. He could demand stress tests to name and shame institutions with no business still standing alone.

Bigger, stronger, more confident banks might make riskier loans that increase the BOJ’s firepower. Regulators employed a similar strategy with Japan’s three or four “megabanks,” figuring size matters when you’re trying to stimulate credit and modernize markets.

Tokyo bureaucrats hoped privatizing Japan Post would reorder the industry, but Japan Post Bank accounts still add to the glut of options. Historically, it ran the world’s-biggest savings institution.

According to the Nikkei Asian Review, Japan has 4,833 bank branches per 10,000 sq. kilometers of habitable area, far more than notoriously overbanked Germany.

Some of the problem boils down to branding. Ever wonder about the awkward and tortured names of some Japanese banks?

Books could be written about how Mitsubishi UFJ Financial Group, or MUFG, got that name over nearly 100 years of mergers, acquisitions and dramas.

When you’re CEO of a venerable, multi-generational regional bank in Kyushu, Shikoku, Hokkaido, your role is more protector than profit-maker.

When you’re CEO of a venerable, multi-generational regional bank in Kyushu, Shikoku, Hokkaido, your role is more protector than profit-maker.

Nobody wants to see a bank’s name and legacy scratched from the letterhead on their watch. And even if a merger happens, branding considerations mean all CEOs want to be the acquirer, not the one purchased.

Such stubbornness is a headwind for Kuroda’s monetary-policy experiment.

On October 20, two days before Abe’s election win, Kuroda said of the regional banks: “Structural downward pressure on their profitability will continue due to a dwindling population and shrinking business opportunities in regional Japan.”

Call it financial karma. It used to be that timid bankers traumatized by the bad-loan crisis of the 1990s were holding the economy back, hoarding government bonds instead of lending.

Now, ever-lower yields, a product of that timidity, are coming back to haunt regional bankers. It’s time Kuroda tried a new tack to incentivize bank CEOs to enter the 21st century.

Abe, too. His inclination is probably to use Sunday’s mandate to pivot to rewriting Japan’s pacifist constitution.

Posterity will remember him more favorably if he loosened labor markets, catalyzed a startup boom, reduced red tape, empowered women and cleared the blockages in Japan’s financial plumbing.

Waking regional banks out of their deflationary stupor is an obvious place to start.

William Pesek is a Tokyo-based journalist, former columnist for Barron’s and Bloomberg and author of “Japanization: What the World Can Learn from Japan’s Lost Decades.”