The Financial Services Agency plans to call on banks and their holding companies to appoint outside board members to improve management transparency, according to sources.
The FSA hopes the measure, which will be in revised guidelines for supervising banks, will also help lenders win the trust of overseas investors, according to the sources.
The measure is in line with the Abe administration’s intention of revising the corporate law with the aim of reinforcing corporate governance. It also follows revelations last year that Mizuho Bank left loans to gangsters intact for years.
Legislation to revise the corporate law that was approved at a Cabinet meeting in the autumn stopped short of obliging firms to appoint outside board members. However, it has a supplementary provision that calls for discussions about imposing such a rule on banks two years after the amended law comes into effect.
Under revised stock listing rules to be enforced in February, the Tokyo Stock Exchange will urge firms to appoint highly independent outside board members. However, companies that fail to comply with the request will not be penalized.
Of the 87 banks and bank holding companies listed on the TSE, 32, all of which are regional or second-tier regional banks, have no independent outside board members, according to the exchange.
Based on the TSE rules, the FSA will urge them to appoint board members from outside the banks’ main business partners and major shareholders.
Mizuho Bank has been condemned for flaws in its management that led to inaction against outstanding loans to “antisocial forces” such as members of organized crime groups.
The bank adopted an outside board member system in November and its parent, Mizuho Financial Group Inc., has announced it will increase the number of such board members.