The arrests are the first involving the bank, the oldest and third-biggest in Japan, and are part of the escalating scandal involving Nomura Securities. The president and chairman of the bank, who were not arrested, are to resign.
Ryuichi Koike, the reputed racketeer, allegedly used some of the loans to buy 300,000 shares in Nomura, prosecutors said. He is then said to have used his position as a shareholder to extort pounds 264,000 from Nomura, Japan's and the world's largest brokerage.
The arrests yesterday came just 24 hours after prosecutors indicted Nomura and two former executives, saying they illegally compensated Mr Koike for trading losses, a crime under Japanese securities laws.
The four bankers arrested yesterday were Tatsuo Shibuya, director of the general affairs department, the section of Japanese companies that usually deals with corporate extortionists; Hiroshi Inotsume, a former managing director and former head of general affairs, who has left the bank; Takushi Manabe, deputy manager of general affairs; and Michiyoshi Kusajima, a former deputy manager of general affairs.
Tokyo prosecutors declined to comment on the arrests, which were described by a spokesman at the Bank of Japan as "extremely regretful".
Dai-Ichi Kangyo loaned the money to Kojin Building, a Tokyo-based real estate company owned by Mr Koike's younger brother, Yoshinori, the bank's president, Katsuhiko Kondo, said in unsworn testimony before the lower house budget committee yesterday. The bank made the loans to what it thought was a legitimate business and it did not know of the connection to Mr Koike, added Mr Kondo, who said that as much as pounds 46m of the money was unrecoverable.
Dai-Ichi's chairman, Tadashi Okuda, and Mr Kondo will resign at the company's annual meeting on 27 June.