The planned merger between Fukutoku Bank and the Bank of Naniwa, two Osaka-based regional firms, will mark the first case in which merging banks, both ailing, receive financial help from the government-backed Deposit Insurance Corp., the Finance Ministry announced Friday.

The revised Deposit Insurance Law, which took effect last December, allows a deposit insurance fund to be used to support a new financial institution resulting from a merger of two or more ailing banks.

Fukutoku and Naniwa, suffering from massive bad loans, might have found it difficult to return customers’ deposits had the revised law not been applied, said Kimio Yamaguchi, chief of the ministry’s Banking Bureau, at a news conference. When both bank’s accepted the ministry’s mediation, it was determined that the revised law could be applied, he said.

The two banks, which will merge to become Namihaya Bank, hope the DIC will buy their nonperforming loans, worth a total of 200 billion yen to 300 billion yen, Yamaguchi said. In exchange, four senior executives from Fukutoku and three from Naniwa will resign by the time the banks merge in October, he said. The banks will also have to lay out restructuring plans, to be examined by the new Financial Supervisory Agency, which takes over a partial function of the ministry in June.

When they merge, the banks plan to increase capital by 4 billion yen with the help of some financial institutions with which they do business, Yamaguchi said. Even with the capital increase, the new bank’s capital adequacy ratio may fall short of 4 percent, a standard required for domestically operating banks, he added.

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