OSAKA -- The arrest of former top executives of the failed Kofuku Bank is expected to unveil the dubious nature of the bank's "family-run" business, which is believed common among many second-tier regional banks.

Osaka-based Kofuku was one of Japan's 60 second-tier regional banks, which originally started as private lending associations. Kokumin Bank and Tokyo Sowa Bank, which also collapsed earlier this year, belong in the same category.

Many continue to be run by their founding families. In the case of Kofuku, the family of former President Tokusuke Egawa effectively controlled about 30 related businesses. Under the nontransparent management of the unlisted bank, it was easy for Egawa and his underlings to channel funds to the family companies without proper screening.

Decisions on loans to the Egawa family firms are said to have been left entirely in the hands of the president and his aides.

According to people close to the bank, Kofuku's senior executive positions were occupied by members of the Egawa family and his extended family.

Kofuku's outstanding loans to the family-related companies reach 140 billion yen. The firms used part of the loans to purchase the building and land of the bank's Osaka headquarters and its branches, leaving the bank to pay rents to the family companies.

Until recently, female workers hired as staff for the bank employees' dormitory were in fact working as maids at the homes of Egawa and other executives, the sources said.

The bank also mobilized several employees as campaign staffers for a Diet member who is a relative of Egawa whenever he sought re-election, they added.

In 1981, the bank opened a small outlet just in front of the Nishinomiya, Hyogo Prefecture, home of Egawa's 70-year-old brother, Benji, the vice president. The outlet is in the middle of a residential area. The Egawa family apparently used the outlet as its private safe, the sources said.

"Senior workers paid greater attention to what the owner says than to their customers," the administrator to the bank, dispatched by the government after its failure in May, said in a report to the Financial Reconstruction Commission.

Before the bank failed, one of the president's aides had reportedly said, "We will protect the Egawa family even if the bank collapses."

After graduating from the agricultural department of the University of Tokyo in 1951, Egawa worked in the family's forestry business before entering the predecessor of Kofuku Bank in 1964. Eleven years later, he took over from his father as president.

Initially, he was known for cautious management, and was even criticized for being overly cautious in his obsession to protect the family assets. Not unlike the top executives of many other Japanese banks, however, he turned to aggressive lending during the bubble boom of the late 1980s, eventually leading to the bank's fall.