Financial Services Agency to set up inspection office

The Financial Services Agency is contemplating establishing an inspection office to oversee the examination of financial institutions, in response to recent scandals at regional credit cooperatives, according to sources. Additional costs for this initiative will be factored into the agency's budget proposal for fiscal 2027, which commences in April of the following year.

The proposed inspection planning office would assess and enhance inspection procedures, invest in medium- to long-term personnel development, and provide guidance on regions requiring intensified scrutiny. This proposal aligns with the government's financial strategy outlined in a recent document, which emphasizes the necessity of bolstering inspection and supervision measures for regional financial entities.

The Financial Services Agency is also contemplating the deployment of dedicated inspectors to regional finance offices throughout the country. In 2018, the agency dissolved its Inspection Bureau, a unit instrumental in addressing a significant bad loan crisis within the banking sector following the country's asset price bubble burst in the early 1990s.

This decision was part of the agency's strategic shift towards prioritizing financial institutions' profitability. However, a series of recent scandals involving shinyo kumiai cooperatives, or shinkumi banks, has prompted urgent calls for improved inspection systems. Notable examples include Iwaki Shinkumi Bank in Fukushima Prefecture, which provided funds to antisocial entities, and Uri Shinkumi Bank in Hokkaido, where a former executive embezzled deposits.

Both incidents have led to partial suspension orders, underscoring the urgent need for a more robust inspection framework.