2 troubled Italian banks failing, to face insolvency

After months of tense negotiations between Rome and European Union regulators, Italy has been allowed to use national insolvency procedures rather than European Union rules created to prevent the use of state money to deal with bank crises.

Padoan told reporters that the overall price tag for the rescue operation would eventually be almost 17 billion euros ($20 billion) because it would include Italian government "guarantees" for 12 billion (some $13.5 billion).

Those rules could have imposed losses on senior bondholders and large depositors, a politically unpalatable prospect ahead of national elections next year given that Italian households hold a large chunk of bonds issued by banks.Some European officials have voiced exasperation at the way Italy has dealt with a string of trouble spots in its banking industry, which is weighed down by almost 350 billion euros of soured debts - a third of the euro zone's total.The country's fourth-biggest bank, Monte dei Paschi di Siena (BMPS.MI), is being bailed out by the state to cover a capital shortfall of 8.8 billion euros.

Italian Minister of Economy and Finance Pier Carlo Padoan said Friday night the government would put up around 10 billion euros of state cash to rescue the stricken Banca Popolare di Vicenza and Veneto Banca. The ECB said the banks had struggled to cope despite a 2016 financial lifeline of 3.5 billion euros given to them by a private Italian equity fund.

A group of four worldwide investment funds offered to inject 1.6 billion euros ($1.79 billion) of fresh capital into two ailing Italian banks in Veneto at the end of May, sources told Reuters, but their plan was not pursued by Rome along with more recent approaches to be part of a rescue deal.

Gentiloni said the government's rescue move at an ad hoc Cabinet meeting Sunday afternoon was mainly aimed at saving "account-holders, savers, of these two banks, in favor of those who work in these banks, and in general in favor of the economy of the territory, one of our most important".

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"EU state aid rules allow for the possibility of granting state support in these kind of situations", the European Commission, which must rule on the use of state money, said in a statement.

In the evening, the European Commission said in a statement from Brussels approved the measures taken by Italy.

Padoan insisted there would be no impact on public finances.

The two Veneto-based banks collapsed after several years of mismanagement and poor lending, and were taken over by the government-sponsored privately backed rescue fund Atlante last year.

The decree is expected to split the two lenders' assets into "good" and "bad" banks. Also at risk are bank employees' jobs.

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