TOKYO (AP) _ A midsize regional Japanese bank has reached agreement to absorb a cash-strapped Midori Bank, the Ministry of Finance said Friday.

The ministry said that Hanshin Bank, located in central Japan, will acquire Midori, which was set up to take over the now defunct Hyogo Bank. Hyogo Bank collapsed in 1995 under the weight of bad loans.

Minister of Finance Hikaru Matsunaga said in a statement that funds from the Deposit Insurance Corp., which insure bank deposits, will be used to protect Midori's customers.

The corporation was recently granted access to up to $127 million in public money to assist restructuring of the banking industry through purchases of bad debt.

Hanshin had said earlier that it wanted to merge with Midori.

Midori's effective unrecoverable losses are between 350 billion and 400 billion yen ($2.61 billion and $2.98 billion), said Kimio Yamaguchi, head of the ministry's Banking Bureau.

Most of the losses were inherited from the defunct Hyogo Bank, he said.

Midori has been essentially insolvent since March 31, Yamaguchi said.

The governor of the Bank of Japan, Masaru Hayami, said that the central bank will also support the agreement between the two banks.