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The planned merger between Japan's Shinsei Bank Ltd. and Aozora Bank Ltd is in danger of collapsing as owners and regulators no longer feel the urgency of the financial crisis that led to the proposed marriage, reports the Wall Street Journal.

According to the Journal, the banks have differed over which strategy the combined entity should pursue. Aozora wants stronger ties with regional banks while Shinsei strongly favors using retail deposits to fund its push into consumer finance.

The newspaper says the slowdown in the talks also reflects the sentiments of Japan's Financial Services Agency which strongly supported the merger when it was announced last year. But the FSA is concerned that the problematic banks threaten the Japanese banking system. The regulators are worried about a mismanaged merger and want to avoid one full of squabbles, where the banks only partially merge and fight internally.

"Given their less stable funding capabilities and weaker business franchises than their larger domestic peers, Aozora Bank and Shinsei Bank may face difficulty maintaining stable earnings amid the challenging business environment," note analysts at ratings agency Standard & Poor's in a recent report obtained by the Journal.

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