Troubled Italian banks Banca Popolare di Vicenza and Veneto Banca could be rescued by some of their bigger counterparts, after it emerged major Italian lenders are considering injecting €1.2bn (£1bn) of private capital into the two regional banks.
Banca Popolare di Vicenza and Veneto Banca need approximately €6.4bn in capital after loan writedowns led to a combined 2016 loss of €3.4bn and pushed their capital below minimum thresholds.
While the Italian government planned to lead the bailout, EU competition authorities have stressed an injection of private capital is one of the requirements to be met before the rescue plan goes ahead.
Italian lenders have already pumped €3.4bn into the two struggling banks and had indicated they would not stump up more money. However, according to sources cited by Reuters, their stance has now changed after realising the prospect of winding down the two Veneto banks could be a lot costlier.
A couple of major Italian banks, which remained unnamed so far, are understood to have thrown their weight behind the bailout, but the cooperation of the whole Italian banking industry is seen as essential for the plan to go ahead.
Under the proposed terms of the bailout, each bank would take part based on the size of its deposits.
Last month, Italian finance minister Pier Carlo Padoan said Rome "was committed" to finding a quick solution to solving the cash crisis at the banks.
Overall Italy's banks have €360bn of problem loans against €225bn of equity on their books after successive governments failed to tackle the country's bloated financial system, exacerbated by fraudulent lending at several institutions.
Italy has eight banks known to be in various stages of distress. Monte dei Paschi di Siena, its third largest by assets. Mid-sized banks Popolare di Vicenza, Veneto Banca and Carige, and four small banks rescued last year: Banca Etruria, CariChieti, Banca delle Marche, and CariFerrara.
The situation is being closely watched by financiers and policymakers across Europe and beyond, who worry a mass failure of Italian banks could trigger panic across the eurozone banking system.