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A lack of personnel due to cost-cutting and poor awareness of staffing issues on the part of executives is to blame for recent system failures at Mizuho Bank, regulators said, following an investigation into the series of glitches that left many of the bank’s customers frustrated.

The bank and its parent, Mizuho Financial Group Inc., were issued a business improvement order by the Financial Services Agency on Friday, leading to the unprecedented resignations of three top executives.

The glitches were caused by a reduction in the number of system-related personnel by executives, who prioritized cutting costs and ultimately weakened Mizuho’s ability to operate and manage its banking system, the regulators said.

Mizuho Financial President and Group CEO Tatsufumi Sakai apologized for the glitches during a news conference Friday night, after the FSA said that Mizuho undermined confidence in Japan’s financial system.

A Mizuho source said that a lack of personnel familiar with the huge and complex banking system was behind the frequent breakdowns.

“After the development (of Mizuho’s current core system) was completed, the people working on it went away,” the source said, adding, “It is true that the operational capability has been weakened.”

Mizuho in 2019 launched its current core system, known as Minori, after its previous system suffered a large-scale failure related to transfers of donations following the March 2011 earthquake and tsunami.

The development of Minori, a massive project intended to merge the systems of Mizuho’s three predecessor banks, involved about 1,000 companies, including Fujitsu Ltd.

Mizuho Financial Group Inc. President Tatsufumi Sakai (left) and Mizuho Bank President Koji Fujiwara leave a news conference after announcing their intentions to resign. | KYODO
Mizuho Financial Group Inc. President Tatsufumi Sakai (left) and Mizuho Bank President Koji Fujiwara leave a news conference after announcing their intentions to resign. | KYODO

The number of systems-related personnel at Mizuho has fallen by about 60% as of the end of March 2021 compared with March 2018. The exodus of talent meant an exodus of knowledge related to the system and its development.

“Mizuho felt a sense of urgency due to its lower profitability than that of rival banks, so it had no choice but to cut costs, leading to a decline in labor and systems-related costs,” an FSA official said.

Another FSA official noted that Mizuho executives’ tendency to place a low priority on systems was at the root cause of the problem, saying there was “insufficient communication between the systems division and top executives.”

The string of system failures damaged trust in Mizuho among its customers. At a news conference on Nov. 12, Sakai said there had been a slight increase in account cancellations due to the glitches.

Still, the glitches have not had a major financial impact on Mizuho. But an FSA official said that Mizuho could “lag further behind other banks if its ability to manage systems remains weak.”

The FSA concluded that Mizuho does not pay enough attention to how its actions affect customers.

Such corporate culture problems were pointed out following the 2002 merger of three banks that created Mizuho and the massive system failure in 2011. The latest incidents underscore a lack of progress in corporate governance reform.

While Sakai and two other Mizuho executives announced they will step down, an FSA official said that “the problems will not be solved only by having someone quit.”

“The important thing is how new top executives will think about finding the root causes of the glitches and preventing recurrences,” the official said.

The FSA is urging Mizuho to implement drastic structural reform, including appointing a chief information officer that has strong crisis management capabilities.

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