Italy's central bank on Saturday gave its approval to a request by scandal hit bank Monte dei Paschi di Siena for 3.9 billion euros ($5.3 billion) of state loans, the latest step in the battle to revive the ailing bank.
The Bank of Italy's backing was the final stage required to free up the financial help for Italy's third biggest lender, which this week revealed loss-making derivatives trades that could cost it about 720 million euros.
After a meeting that lasted most of Saturday, the central bank issued a brief statement to say its board had given "a favorable opinion" on the bailout. It gave no further details.
The scandal surrounding Italy's oldest bank has hit its share price and prompted questions about how the risky deals could have been hidden from regulators.
The issue has shot to the centre of the campaign for a Feb. 24-25 national election and politicians have blamed the Bank of Italy (BOI), led by current European Central Bank President Mario Draghi at the time of the deals, for failing to spot them.
At Saturday's meeting the BOI's four member board, chaired by Governor Ignazio Visco, had to judge whether the bank's current and future capital adequacy and stability were sufficient to receive the loans.
The Tuscan bank was forced to seek state aid last year for the second time since 2009 after becoming one of just four European lenders that failed to meet tougher capital requirements set by regulators.
Under the loan scheme the bank will issue 3.9 billion euros of bonds to the Italian Treasury, with just under half of these replacing 1.9 billion euros of existing state help.
The lender's new management, appointed last year to turn it around, said on Friday the situation was "completely under control".
The bank will pay a hefty 9 percent coupon on the bonds, which are worth more than its current market capitalisation of 3 billion euros. The coupon will increase by 0.5 percentage point every two years up to a maximum of 15 percent.
At a stormy meeting at Monte Paschi's Siena headquarters on Friday, shareholders approved two capital increases for 6.5 billion euros to be carried out if needed in the next five years, which are a condition of the state bailout.
That raises the prospect of possible nationalisation, because if the bank cannot repay the state bonds or the coupons attached to them, it will have to issue shares to the Treasury.
Prime Minister Mario Monti said late on Friday he considered nationalisation a "remote hypothesis".