Italy wants to borrow up to €20 billion to support its fragile banking sector and potentially rescue Monte dei Paschi di Siena.

Monte dei Paschi di Siena, Italy’s third-largest bank, needs to raise €5 billion in fresh capital by the end of the month.

If the bank cannot arrange a private sector bailout, a state rescue may come as early as this week.

Monte dei Paschi di Siena is saddled with bad loans and is deemed to be the weakest major EU bank.

Image source Wikipedia

The government will seek parliamentary approval to help to borrow the money.

PM 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, 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.

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