Prosecutors sought on Wednesday prison terms of up to three years for three former top executives of the failed Long-Term Credit Bank of Japan, the predecessor of Shinsei Bank, for falsifying financial statements for the 1997 business year to conceal 313 billion yen in bad loans.

Prosecutors demanded a three-year term for Katsunobu Onogi, 65, a former LTCB president, and two years for former LTCB Vice Presidents Yoshiharu Suzuki, 64, and Masami Suda, 62.

The three defendants have pleaded not guilty to charges of window-dressing settlements in violation of the Commercial Code and the Securities Transactions Law.

In past Tokyo District Court hearings, they admitted falsifying financial statements, but had argued they did not know at that time such acts constituted a crime.

The three allegedly failed to write off and set aside allowances for 313 billion yen in bad loans for the business year, which ended on March 31, 1998, and submitted a false financial statement to the Finance Ministry that concealed the loans.

They are also accused of illegally paying about 7.1 billion yen in dividends to shareholders in June 1998 after falsely declaring the bank had made 46 billion yen in profits.

The accused had claimed that management could decide the amount of bad loans that could be written off or how much money should be set aside as allowances for those loans at its own discretion, and that there were no clear standards on the matter.

They also claimed the ministry endorsed the "gradual accounting measures."

In November 1996, the bank estimated it would have to write off 1.2 trillion yen in bad loans, but failed to do so because it would have brought the bank's capital-adequacy ratio below 8 percent, a requirement of the Bank for International Settlements for commercial banks operating overseas, prosecutors said.

In December 1997, Suzuki and Suda compiled an in-house rule, approved by Onogi, allowing themselves to estimate the amount of salvageable loans higher than they actually were, investigators said.

LTCB, one of Japan's three long-term credit banks, was nationalized in October 1998, when it collapsed under the weight of bad-loan losses.

It was taken over by a consortium of U.S. and European financial institutions in March 2000 after all the bank's shares were sold to the group. The bank renamed itself Shinsei Bank in June that year.