(Bloomberg) -- Italy's parliament approved a law to plow as much as 20 billion euros ($21 billion) into Banca Monte dei Paschi di Siena SpA and other troubled lenders as part of the nation's efforts to revamp its banking industry.
The lower house gave its final approval to the legislation Thursday, converting the decree law passed by Prime Minister Paolo Gentiloni's cabinet in December. It includes emergency liquidity guarantees and capital injections for struggling lenders in compliance with state aid rules. Banks will be able to request precautionary recapitalizations that would see some bondholders take a hit.
Monte Paschi was the first bank to seek funds under this new program after it failed to raise fresh money from investors in December. The European Central Bank said the Siena-based lender must raise 8.8 billion euros to bolster its balance sheet under a precautionary recapitalization plan that Monte Paschi itself requested. Talks are underway on a new business plan for the bank that must be approved by European authorities.
Italy's banks are struggling under the weight of a 360 billion-euro mountain of bad loans, a plight that has eroded profitability and undermined investor confidence. Taking Monte Paschi into public ownership, which would be Italy's biggest nationalization since the 1930s, could be followed by rescues of lenders including Veneto Banca SpA and Banca Popolare di Vicenza.
Italy's Treasury may take stakes in the two lenders for a limited period, Quaestio Capital Management President Alessandro Penati was quoted as saying earlier this month. His firm runs the fund that rescued the banks last year.
--With assistance from Lorenzo Totaro
To contact the reporters on this story: Chiara Vasarri in Rome at cvasarri@bloomberg.net, Sonia Sirletti in Milan at ssirletti@bloomberg.net.
To contact the editors responsible for this story: Elisa Martinuzzi at emartinuzzi@bloomberg.net, Paul Armstrong
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