Italy seeks 20bn euros for banks as Monte dei Paschi flounders

A man walks in front of the Monte dei Paschi bank in Siena, Italy. Image copyright Reuters
Image caption Monte dei Paschi is the world's oldest bank

The Italian government will seek parliamentary approval to borrow up to €20bn (£17bn) to support its fragile banking sector and potentially rescue Monte dei Paschi di Siena.

The country's third-largest bank needs to raise €5bn in fresh capital by the end of the month.

If Monte dei Paschi cannot arrange a private sector bailout, a state rescue may come as early as this week.

It is saddled with bad loans and is deemed to be the weakest major EU bank.

Italian Prime Minister Paolo Gentiloni, whose government has only been in office for a week, is under pressure because private investors would suffer any losses under EU bailout rules.

He described the move as a "precautionary measure", adding: "We believe it is our duty to take this measure to protect savings. I hope all the political movements in parliament share this responsibility."

However, Italy's economy minister, Pier Carlo Padoan, stressed the funds would be used to ensure adequate liquidity in the banking system and support other struggling banks.

Officials have also said they were examining a scheme to compensate retail investors for any losses incurred.

Mr Gentiloni's predecessor, Matteo Renzi, resigned after losing a referendum on constitutional reform and was regularly accused of being too close to the banks.

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