Italian government bails out 'world's oldest bank'

The Italian government is bailing out Monte dei Paschi di Siena after Italy's third-largest bank failed to raise the €5bn needed to stay afloat.

The government passed the bailout decree for what is thought to be the world's oldest bank early today.

Parliament has approved a €20bn fund to guarantee the stability of Italian banks, with MPS the most vulnerable.

Shares in Monte dei Paschi were suspended today on the Milan stock exchange.

MPS said last night that it had not secured a key anchor investor to pump money in, and that efforts to swap debt for equity had netted only €2.45bn.

The government passed the decree saying it was 100% guaranteeing the bank's retail customers.

Under the decree, the government will temporarily support MPS by offering it capital under a formula agreed with the European Commission called "precautionary recapitalisation", under which the state offers assurances that the bank is solvent and that the government will get its money back.

The bank's troubles come amid broader concerns over Italy's banking system, which is weighed down by €360bn in bad loans.

MPS is by far the most vulnerable after it was listed as the worst-performer in this summer's European Union stress tests of banks.

Consumer advocate organisation Codacons estimated the Italian bailout fund could cost each Italian family €833.

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