Monte Paschi Says ECB Sees the Need for $9.2 Billion of Capital

The European Central Bank has told the Italian bank Monte dei Paschi it needs to plug a capital shortfall of nearly 9 billion euros, higher than a previous 5 billion euro gap estimated by the bank.

The Italian government approved a decree on Friday to bail out Monte dei Paschi after the world's oldest bank failed to win investor backing for a desperately needed capital increase.

In those tests Monte dei Paschi was the only Italian bank to come short under an adverse scenario.

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Under the process, the bank applies to the government authorities for a precautionary recapitalization and the state asks the banking supervisor ECB to confirm the solvency of the bank.

According to the ECB, Italy's third-largest lender was solvent, but the bank's liquidity position had rapidly deteriorated between the end of November and December 21.

The European Commission needs to give the final stamp of approval before any bailout money can go to Monte dei Paschi.

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Support from the government was requested by the bank in form of state precautionary recapitalization last week after a plan to raise over €5 billion from private investors fell through. The intervention means a modest bail-in of investors with the government able to purchase shares or bonds at market terms authorized by the European Union in Brussels.

The bank's shares are down nearly 86 percent for the year.

Monte dei Paschi stated it had officially asked the European Central Bank on Friday to give the green light to its precautionary recapitalization, after the Italian government approved a bailout for the ailing lender.

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Monte Paschi's shares are suspended from trading in Milan until full details of the bank's capital-strengthening are available.

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