Italy's new government is asking parliament to approve up to an additional €20bn in funding to rescue the country's troubled banks, if necessary.
The cabinet lead by Prime Minister Paolo Gentiloni (pictured), approved the measure late on Monday, as Italy's third-largest lender, Monte dei Paschi di Siena, is seeking to raise €5bn in the markets to stay afloat.
Investors signalled their doubts about the operation, with its share price dropping by 11% before the government's announcement.
Parliament must vote before the new funding can be allocated.
Concern that Monte dei Paschi may need a state bailout before year-end comes amid broad concerns about Italy's banking system, which is weighed down by some €360bn in bad loans which banks will struggle to repay due to the weak economy.