The government completed procedures Monday to seize all shares in Ashikaga Bank and temporarily nationalize the insolvent regional lender.

The Bank of Japan responded by telling financial institutions it would inject 1 trillion yen into the short-term money market to shield the banking system from the impact of Saturday's government decision to nationalize the bank, money market sources said.

The BOJ will provide the additional liquidity to the market through the imminent purchase of securities held by the institutions, the sources said.

The government acquired all shares owned by holding firm Ashikaga Financial Group Inc. at no cost by invoking Article 102 of the Deposit Insurance Law.

Following the government's step, Ashikaga Bank's stock became worthless.

In addition, 135 billion yen in taxpayer money that the bank received in 1998 and 1999 is now irrecoverable.

On Saturday, the government's Financial System Management Council announced a plan to nationalize Ashikaga Bank. It is Japan's second bank rescue this year, following that of Resona Bank under Resona Holdings Inc. in June.

Ashikaga Bank had a negative net worth of 102.3 billion yen as of the Sept. 30 end of the first half of fiscal 2003.

On Monday, Ashikaga Bank, based in Utsunomiya, Tochigi Prefecture, continued operating as usual, and all deposits will be protected. But it will be separated from its parent, Ashikaga Financial Group.

The Bank of Japan is ready to extend unsecured loans to the bank in the event of a run on deposits.

Government ministries and agencies will convene a meeting with Tochigi officials later this week to discuss ways to minimize the negative effects of the bank's nationalization on the local economy.

Ashikaga Bank replaced its president Monday to clarify management responsibility for its financial plight, but the newly appointed president, Koichi Makita, will soon be replaced by someone to be selected by the government by the middle of this month.

Makita, former managing director, took over from Yoshiaki Higano, who also resigned as president of Ashikaga Financial.

The managers are expected to face criminal and civil charges in connection with the bank's financial crisis.

The government is meanwhile expected to choose a new management team from outside the bank, possibly next week. A former BOJ official and other financial experts are seen as likely candidates.

The government will name several outside directors with an eye to shifting the banking group to an entity whose management will be closely monitored by a separate supervisory committee.

After the new management team is formed, the government will start drawing up a new business plan.

In mid-January, the government is expected to begin looking for a bank to take over operations at Ashikaga Bank.

Bank of Tokyo-Mitsubishi, the biggest shareholder in Ashikaga Bank's parent, and foreign investors are reportedly interested.

Ashikaga is to be absorbed by a bridge bank within several years.

The bank, founded in 1895, is the largest financial institution in Tochigi, with group assets of 5.26 trillion yen and deposits of 4.93 trillion yen as of March 31.

It fell into financial trouble following aggressive lending during the era of the asset-inflated bubble economy in the late 1980s.