The Italian government approved a decree on Friday to bail out Monte dei Paschi di Siena after the world's oldest bank failed to win investor backing for a desperately needed capital increase.
Looking to end a protracted banking crisis that has gummed up the economy, Prime Minister Paolo Gentiloni said his Cabinet had authorized a 20 billion-euro ($20.9 billion) fund to help lenders in distress - first and foremost Monte dei Paschi.
Within minutes of the late-night Cabinet meeting ending, the country's third largest lender issued a statement saying it would formally request state aid, opening the way for possibly the biggest Italian bank nationalization in decades.
The government has said its long-awaited salvage operation will work within European Union rules, meaning some Monte dei Paschi bondholders will be forced to accept losses to ensure the taxpayer does not pick up all of the bill.
However, the government and Monte dei Paschi promised protection for around 40,000 retail savers who had bought the bank's junior debt. Many of the high street investors say they were unaware of the risks when they purchased the paper.
"Today marks an important day for Monte dei Paschi, a day that sees it turn a corner and be able to reassure its depositors," said Gentiloni, who only took office last week and has made the bank rescue his first priority.