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TOKYO (Reuters) - Japan's banking regulator on Wednesday ordered Mizuho Financial Group Inc to submit an updated report on its failure to stop loans to organized crime members a day after the bank admitted its top management knew of the illicit transactions.
The bank had earlier told authorities that only its compliance officers had known of the loans and that top management had not been aware of the problem.
The revelation is likely to further hurt its relationship with the regulator and the bank's admission that top management knew of the loans also puts their responsibility under greater scrutiny.
The bank is already due to deliver a business improvement report to the Financial Services Agency (FSA) by October 28. The new report will require the bank to specify the details of who at the bank knew what about the loans and when they knew it.
Yasuhiro Sato, president of Japan's second-largest lender by assets, said on Tuesday former head of its core unit, Mizuho Bank, was made aware of the loans back in 2010.
Sato said he was also "in a position to know" about the issue as early as 2011 since he attended meetings where papers mentioning the loans were handed out, although he said he did not recognize the seriousness of the matter at the time.
He said the bank is waiting for an independent panel of outside lawyers to determine whether the false report to the regulator was a misunderstanding by bankers in charge. The panel was created this week to investigate the scandal.
Last month, the FSA ordered Mizuho to improve its business practices over the more than 200 million yen ($2.06 million) in loans extended indirectly via a partially bank-owned finance firm called Orient Corp to organized crime members.
The FSA said it was especially problematic that Mizuho did not take action to prevent the loans more than two years after it first learned about them in 2010.
Orient made some 230 auto loans and other credits totaling 200 million yen to clients who turned out to be "yakuza" criminal members, the regulator say.
The loan scandal has become the biggest challenge to Sato, who took the helm of Mizuho Financial Group in June 2011. He became president of the bank after it reshuffled its top management because of a massive computer system glitch in the immediate aftermath of earthquake and tsunami in March that year.
Sato carried out a drastic streamlining of its group structure that had long been criticized, combining its two banking units into one in July this year. He assumed the top position at both the holding company and the banking unit.
Reporting by Taiga Uranaka and Noriyuki Hirata; Editing by Matt Driskill