The Italian government moved closer to a potential rescue of lenders including Banca Monte dei Paschi di Siena SpA by seeking permission from parliament to increase the nation’s public debt by as much as 20 billion euros ($21 billion).
The plan is aimed at providing a backstop to the banking system “through public guarantees in order to restore their short- and medium-term lending ability,” Finance Minister Pier Carlo Padoan said following a cabinet meeting Monday night. The funds could also be used “for capital-strengthening programs of banks within recapitalizations that include the sale of shares,” he added.
Monte Paschi Chief Executive Officer Marco Morelli is scampering to find investors to back a private 5 billion-euro capital increase by the end of this year. Should his efforts fail, Prime Minister Paolo Gentiloni’s cabinet has laid the groundwork for a state-sponsored cash injection with the possible sale of government bonds.
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