Under its bank reforms, Japan will set up a ¥60 trillion ($500bn) fund of taxpayers' money in an attempt to strengthen their capital.

But to accept the public money would potentially cost the jobs of the heads of the 19 top banks. Many would have to resign as a condition for accepting the money and admit they are near bankruptcy.

The banks are foundering on mounting bad loans which amassed from the 1980s speculative bubble economy.

Prime minister Keizo Obuchi said that the bad loans amounted to some ¥100 trillion ($840bn), far higher than the official estimates.

The final part of the banking reform legislation is expected to be enacted on Friday.

Safety in numbers

But Japan's central bank chief Masaru Hayami put pressure on the chiefs to accept the money together.

Governor urges banks to accept funds

"I hope that the top 19 or 18 banks apply for public funds, not one by one, but at the same time," said Mr Hayami.

Long-Term Credit Bank of Japan Ltd. is still theoretically one of the country's top 19 banks but after its virtual collapse in June it is expected to be nationalised later this year.

Mr Hayami pointed out that the major banks had core capital, cash available used to write off bad loans, worth just 4% of their total loans at home and abroad as of last March.

"That figure is not large at all," the governor said. "It is necessary to strengthen funds by public capital."

More foreign alliances

The severity of the banking crisis and the recent deregulation of the banking, brokerage and insurance industries, has led to Japanese financial institutions being more amenable to foreign alliances.

Unofficial reports emerged this week that Citigroup Inc, the largest financial services company in the US, is soon to begin negotiations on forging links with two major Japanese banks.

Citigroup hopes to join an existing alliance of the two so-called city banks in Japan - Asahi bank and Tokai bank, to develop and sell mutual funds in the Japanese market.