[paper] Mizuho Incident Highlights Lack of Bank Management Vision

Makoto Saito: Professor at Faculty of Economics, Hitotsubahi University

Makoto Saito is Professor at Faculty of Economics, Hitotsubahi University. His academic papers have been published in professional journals including Journal of Monetary Economics, Journal of Mathematical Economics, Journal of Economic Dynamics and Control, Journal of International Economics, and Journal of Banking and Finance. He also wrote several books on macroeconomics and financial economics in Japanese. He graduated from Faculty of Economics, Kyoto University in 1983, and received Ph.D. in economics from Massachusetts Institute of Technology in 1992. He taught economics at several institutions including the University of British Columbia, and took his current appointment in 2001.

The Genron NPO survey report indicates that the large-scale computer system glitch at the Mizuho financial group was a natural result in the absence of governance. I basically agree with this report. The current conditions that Japan's bank management is facing indicate that banks have fundamentally lacked management vision.
In Japan as well as other developed countries, we have to accomplish a task of converting management of banks in response to diversification of financial function as a result of rapid development of information and financial technologies. During the course of diversification, divestiture and conbination of banks are inevitable.

What is symbolic in the Mizuho problem is that the system trouble was experienced in the settlement function. Banks have not been charging fees to cover the system and operation costs for their financial settlement services. Settlement services could become an auxiliary earnings base and their positioning is important for bank management strategies.

If Mizuho management have had a clear vision on the settlement services including the new services, the integration of the Mizuho group banks would have provided a great opportunity for the Mizuho group to propose a new fee stracture to customers.

The division of financial function is rapidly diversifying not only for retail services but also for business customer services and is expected to resolve banks' excess presence in loans and deposits. How to respond to the diversification of financial functions, Japanese banks are asked to create that a strategic vision.

If Mizuho might have failed to discuss how to strategically position the settlement services after the integration of the three banks and viewed the services as a loss-losing operation. If so, it would be no surprise to hear that Mizuho did not spend sufficient labor and money for the implimentation of an integrated settlement system as people are preoccupied with negative ideas regarding the turf aand honor of the three banks. Convenience stores, the Internet and others have already launched their own financial settlement services.

Mizuho should take such change into account in its restructuring efforts. Although Various preconditions may be required, for restructuring efforts to cope with the deepening division of financial services, such restructuring efforts under an innovative vision could allow Mizuho to secure its future development.