Mizuho’s new leadership must strike at root cause of system failure

Editorial

November 27, 2021

It is only natural for the top management of the bank and its parent company to step down. The change of leadership has to lead to preventing the recurrence of system failures and reforming the corporate culture.

The Financial Services Agency has issued business improvement orders for Mizuho Bank, Ltd., which has had system failures eight times since February this year, and its parent company, Mizuho Financial Group, Inc., saying that they have undermined trust in Japan’s payment system.

Mizuho Financial Group President Tatsufumi Sakai and Mizuho Bank President Koji Fujiwara have expressed their intention to resign in response to the agency’s instruction to clarify their management responsibilities.

They said the resignations will be effective April 1. It must be said several months from now is too late, given that the repeated troubles betrayed the trust of customers.

The business improvement orders follow administrative actions against the two entities in September when the FSA sought for them to correct their system operations. In the latest orders, the bank and parent company were criticized for the management teams’ lack of awareness regarding the importance of the system.

It is said the banking group cut the number of personnel tasked with the maintenance and operation of its core system by about 60% after it revamped the system, which is responsible for its main operations, such as payment services.

The banking system is a form of infrastructure that supports the smooth flow of funds. If Mizuho Bank and Mizuho Financial Group prioritized cost reduction over stable operations, it can only be described as poor judgment.

At the time of the February failure, top executives and others were notified of the incident via email, and delays in checking the receipt of the emails meant their grasp of the situation and their responses to customers lagged. Fujiwara reportedly learned the failure from online news. The crisis management system was too sloppy.

The FSA also sees it as problematic that the boards of directors failed in their role. Of Mizuho Financial Group’s 13 board members, six are from outside the company, most of them having experience as presidents of major companies. They should have pressed for an enhanced crisis response system and the reform of corporate governance.

Meanwhile, Mizuho Bank was found to have remitted funds overseas without following the procedures set forth under the Foreign Exchange and Foreign Trade Law at the time of a system glitch in September that caused delays in processing some foreign currency-based remittances. The Finance Ministry ordered the bank to take corrective measures.

Amid these troubles, the bank failed to thoroughly check that recipients of the money were not involved in money laundering. This was caused by employees’ lack of knowledge of the law, demonstrating sloppiness in compliance.

Mizuho, which was formed by the integration of three banks, is said to have fallen into “immobilism,” in which employees do not actively express their opinions, perhaps to avoid conflict among groups divided according to which of the previous banks they are from. In such situations, it is not easy to carry out reforms.

The new management teams have a very heavy responsibility to restore trust.

— The original Japanese article appeared in The Yomiuri Shimbun on Nov. 27, 2021.