LTCB asked to huddle under the government's umbrella on the first day the new laws came into force.

In its application to Prime Minister Keizo Obuchi, the bank said that without help it would face a situation in the future where it would have to halt repayments of deposits.

Prime Minister Obuchi says all LTCB contracts will be honoured

Mr Obuchi promised the government would "protect depositors and...do everything it can to ensure the stability of financial markets."

The stability of the banking system was put under renewed doubt by news that Moody's Investors Service is considering downgrading the credit rating of four major Japanese banks - Bank of Tokyo-Mitsubishi, Industrial Bank of Japan, Sanwa Bank and Sumitomo Bank.

Apologies

In a statement, the bank apologised to its shareholders: "LTCB deeply regrets the current situation it is in and expresses the heartiest apologies to its shareholders, customers and other relevant parties for causing great concerns and for affecting the stability of the financial system."

Under the new law, the government can now make a forced purchase of all its common shares at a price set by itself. On Friday the Tokyo stock exchange suspended trading in LTCB shares.

Once under state control, LTCB can continue its ordinary banking operations. The law requires the government to sell off LTCB's healthy assets to another bank in three years time.

It is the first Japanese bank to be nationalised since World War II.

Wirtschaftswunder gone wrong

LTCB was one of the banks which helped Japan create its very own post-war 'Wirtschaftswunder', providing cheap credit for companies setting out to conquer world markets.

Like many other banks, LTCB became a victim of the collapse of Japan's property market in the 1980s.

When property prices collapsed and the economy slumped, the banks found themselves with huge mountains of bad debts.

LTCB is struggling under the weight of 4.6 trillion yen ($34bn) of bad and risky loans.

The weakness of the financial sector is one of the main reasons for the prolonged economic crisis in Japan, and the Tokyo government is to pump up to 60 trillion yen ($508bn) into ailing banks to boost their capital.

The nationalisation of LTCB is the first big step, and other banks are expected to follow, applying at least for some help from the government.