The move indicates that the focus of this country's bank mop-up is now shifting from large international lenders to smaller domestic banks. Tokyo-based Kokumin denied that regulators are looking to close it down. "We haven't heard anything yet from the Financial Revitalization Commission or the Financial Supervisory Agency," the second-tier bank said. "Given that we haven't been informed of the result of the inspection, currently the report isn't true."

Spokesmen at the Financial Supervisory Agency and the Financial Reconstruction Committee, both of which regulate the banking industry, declined to comment. But a report in the Nihon Keizai, Japan's leading economic daily, said the two agencies have deemed Kokumin Bank too weak to stay in business.

A spokesman at Kokumin said that regulators completed an inspection ofthe bank on March 4, but that the bank's managers were still waiting to receive the results of the inspection.

Japan's financial debacle is still far from over, but regulatory authorities now have in place a system to address the problems at deeply troubled banks. The Nihon Keizai report said that all deposits at the bank will be guaranteed, and that its loan assets would be shifted to a government bailout agency. Kokumin is a medium-size regional lender with 40 domestic branch offices. It incurred a net loss of roughly $100 million for the year ended March 31.

The regulator, who is familiar with the results of recent bank inspections, said the inspections of several regional lenders have revealed severe problems with bad loans to the depressed property sector. Now that the government has successfully recapitalized large banks with a huge injection of public money, the official said, bank regulators will shift their attention to other parts of the financial industry, beginning with troubledregional banks.