Japan's biggest banks are currently embroiled in a nasty investigation after one of its ranks admitted bankrolling the illegal activities of the country's yakuza organised crime gangs.

Japan's Financial Services Agency (FSA), the country's financial regulator, on Wednesday said it will inspect two other big banks after Mizuho Financial Group admitted lending more than 200 million yen ($2 million) to people tied to the yakuza, Japan's influential network of crime syndicates.

The other two banks identified as top priority for nit-picking were Bank of Tokyo-Mitsubishi UFJ and Sumitomo Mitsui Bank. Bank of Tokyo-Mitsubishi UFJ is the country's No. 1 bank by assets, Mizuho Financial Group is No. 2 while Sumitomo Mitsui Bank is No. 3.

A man cycles past the Bank of Japan building in Tokyo October 31, 2013. The Bank of Japan maintained its massive stimulus programme at a policy review on Thursday, and later in the day is expected to slightly revise up its economic growth forecast to around 1.5 percent for the next fiscal year. REUTERS/Yuya Shino

Mizuho Financial Group said its senior managers knew of the loan lending to Japanese criminal gangs when it released the cash three years ago.

Japan's yakuza gangs are not actually illegal. They are in fact a known and established and accepted identity in Japan. However, their identity equates to gambling, illegal protection rackets, drugs and prostitution, among others, activities which are not really pleasant to most eyes.

Lawyers hired by Mizuho to investigation into the transactions said on Monday that "many officials and board members were aware of, or were in a position to be aware of, the issue."

Yet, "they did not take action" simply because the bank did not recognize it to be a problem or even a future financial menace. Managers thought its compliance division "was taking care of it," the lawyers said in a report.

Takashi Tsukamoto, Mizuho Financial Group bank chairman, has signified his intention to resign from his post. He will however remain as head of the parent company. Apart from him, 54 other former and current executives stand to be penalized because of the financial scandal.

Yasuhiro Sato, Mizuho Financial Group bank president, meantime had offered to take a six-month cut from his pay as token of his "deep regrets" over the affair.

Mizuho Financial Group President Yasuhiro Sato attends a news conference at the Bank of Japan headquarters in Tokyo October 28, 2013. Mizuho Financial Group looks likely to escape serious penalty in a loans-to-mobsters scandal after an outside panel said on Monday that Japan's second-biggest bank by assets did not intentionally cover up the shady lending. REUTERS/Issei Kato

But a group of lawmakers in Japan's ruling Liberal Democratic (LDP) party want more sanctions meted out.

"The feeling is that the penalties so far are not enough," Keisuke Suzuki, a member of the house of representatives and acting director of the LDP's finance committee, told the Financial Times.

Specific investigations to be carried out starting next week by FSA will focus on compliance and risk management on the country's financial sector.

"If the probe shows there are areas needing improvement, then we will do so," Taro Aso, Japan's Finance Minister, told Bloomberg when asked of potential improvements to the sector.