Japanese financial regulators said yesterday they would take over a failed regional bank while the Bank of Japan said it would supply funds to protect its depositors.

Japan's Financial Reconstruction Committee (FRC) said that it was putting troubled Kokumin Bank under state control and would assess the good and bad loans on the bank's books.

The FRC said it would try to find a buyer for Kokumin Bank after disposing of its bad loans to a government-run debt-collection body, but would set up a "bridge bank" to wind up its business if no taker for its good assets could be found.

Analysts said the nationalisation of the small regional bank, which had 524.74 billion yen ($4.34 billion) in deposits and 745 employees as of the end of September, would not rock the nation's financial system. But it could be a prelude to more failures at Japanese regional banks.

Japan's regulators are now shifting their attention to regional banks as well as insurers and brokers, and analysts expect shakeouts in all three sectors as financial liberalisation proceeds under Japan's "Big Bang" reforms.

The committee's action is based on financial reform legislation passed last year to restore the health of the nation's ailing banking sector, burdened with massive bad loans left over from the early 1990s bursting of Japan's economic "bubble" of inflated asset prices.