Italian Prime Minister Paolo Gentiloni has announced he will ask parliament to approve a large funding package for the country's troubled banks. He said the measure was needed to protect clients' savings.
The Italian government announced a request to parliament to raise public debt by 20 billion euros ($20.8 billion) to fund the possible rescue of the world's oldest lender, Monte dei Paschi di Siena (MPS), and other ailing banks in the country, should the need arise.
Rome said raising public debt could become necessary to adopt measures aimed at protecting savers "in case risks in the financial sector were to materialize."
MPS is at the heart of an Italian banking crisis, which has cost it over 80 percent of its market capitalization in the past 12 months.
The proposed rescue fund "is a precautionary measure," Prime Minister Paolo Gentiloni told reporters. "I hope all the political movements in parliament share the responsibility to protect savers," he added.
MPS had started a last-ditch attempt to raise money on its own via a 5-billion-euro recapitalization scheme to be completed by the end of this year. The bank has already raised about 1 billion euros from a debt-to-equity swap, whereby holders of bonds in the bank accept to transform them into shares.
State support for ailing banks is a politically sensitive issue in the European Union. This is because under the bloc's so-called bail-in rules, investors in a troubled bank should be made to pay for its rescue before the bill is shifted on to taxpayers.