The Italian government has launched a €3.6bn plan to rescue four small and midsize local banks that are in trouble.
Banca delle Marche, Banca Popolare dell'Etruria, Cassa di Risparmio di Ferrara and Cassa di Risparmio di Chieti are among the banks hit by growing bad loans and that have failed to absorb losses due to lack of capital, as reported by the Wall Street Journal.
The privately-funded rescue plan will be conducted by Bank of Italy as the government is aimed at saving the before January, when new EU rules come into effect.
The new rules will require depositors with more than €100,000, as well as shareholders and bondholders to bear losses before public money can be used to prevent the banks from falling.
The plan will be financed by the newly-formed National Resolution Fund and healthy banks, which make annual contributions worth nearly €600m, Reuters reported.
The healthy banks will pay three years of contributions at once, with the help of a 18-month bridge loan from three lenders including Unicredit, Intesa Sanpaolo and UBI Banca.
Prime Minister Matteo Renzi's government passed an emergency decree to immediately implement the plan, which was approved by the European Commission.
The four troubled banks, along with several other small lenders, have suffered most during recession between 2012-14.
Italian banks are still in distress with non-performing loans increasing from €198bn to €200bn in September this year.