2 troubled Italian banks failing, to face insolvency

Earlier the European Central Bank said the two banks, which have a capital shortfall of 6.4 billion euros and are bleeding deposits, were failing or likely to fail, setting in motion the process that will lead to them being wound down. Italy may include changes to its bankruptcy law in the decree it's readying, according to the Italian newspaper La Stampa.

Another Italian bank, Intesa Sanpaolo, said Wednesday it would be willing to acquire some parts of Veneto Banca and Banca Popolare di Vicenza so long as that did not worsen its own finances.

Gentiloni said the government's move at an ad hoc Cabinet meeting Sunday afternoon was mainly aimed at saving "account-holders, savers, of these two banks, in favor of those who work in these banks, and in general in favor of the economy of the territory, one of our most important".

Padoan told reporters that the overall price tag for the rescue operation would eventually be almost 17 billion euros ($20 billion) because it would include Italian government "guarantees" for 12 billion (some $13.5 billion). Among issues still to be resolved are the number of layoffs, which may be funded with state money, and the number of branches that could be sold or closed.

Pressure on Rome to find a solution for the two Veneto lenders had increased since Spain's Banco Popular POP.MC was rescued by Santander this month in a deal orchestrated by European authorities.

The action is likely to raise questions about Monte dei Paschi di Siena, an Italian bank which suffers from some of the same problems as the two banks that failed but is much larger. After reviewing their books, the European Central Bank in April said they needed about 6.4 billion euros of new capital, prompting a search for ways to bridge the gap.

The state is expected to foot the bulk of the bill, taking on the lenders' soured debt. The private sector balked at the plan.