The merged bank, to be headquartered in Milan and Verona, will have around 171 billion euros in assets, 2,500 branches and more than 25,000 staff - making it the country's third biggest lender behind Intesa Sanpaolo and UniCredit.
The deal creates a banking heavyweight in northern Italy, with synergies from the tie-up estimated at 365 million euros a year from 2018.
The new group's chief executive will be BPM's current CEO Giuseppe Castagna, with Banco Popolare's Carlo Fratta Pasini serving as chairman. Banco Popolare's shareholders will have 54 percent of the combined bank, with BPM investors taking the rest.
The cash call, for which a pre-underwriting agreement has been signed by Mediobanca and Merrill Lynch, could include the issuing of financial instruments that can be converted into shares, they said.
The deal also envisages spinning off some of the banks' branches in Lombardy into an entity that will remain separate from the main group for three years - a move intended to grant BPM some sort of autonomy, albeit for a limited amount of time, as requested by its powerful union shareholders.
"Capital and governance are now fine," a source familiar with the ECB's thinking said. "The ECB has given an informal, preliminary go-ahead."
The two banks still need to present a business plan within a month. The deal also needs the approval of both lenders' shareholders, with a vote due to take place by Nov., 1 2016.
Italy's government has firmly thrown its weight behind the merger, the first to result from banking reform last year that was intended to encourage tie-ups.
Months of talks between the two cooperative banks had stalled due to ECB demands for a strong capital base and asset quality. The banks, reluctant to ask their investors for more money, had initially ruled out raising capital.
The chief of ECB banking supervision, Danielle Nouy, said on Wednesday it would not impose the same conditions on smaller mergers, adding there was room for more consolidation in Italy.