Italy's parliament has approved a government request to increase the public debt by up to 20 billion euros ($A28.7 billion) to fund a rescue package for ailing banks, starting with Monte dei Paschi di Siena (MPS).
MPS, founded in 1472 and considered the world's oldest lender, is struggling to complete a five billion-euro recapitalisation by the year's end, as required by the European Central Bank after it came bottom in recent stress tests.
A resolution in favour of the government's plan was approved in a 389-134 vote, with eight abstentions, in the lower Chamber of Deputies. A few minutes after, the Senate also have its go-ahead in a 221-60 vote, with three abstentions.
The 20 billion-euro sum "is sufficient" to solve the problems of an Italian banking sector that "is solid, healthy, with some well-known critical cases with specific characteristics for each," Economy Minister Pier Carlo Padoan told the Chamber of Deputies on Wednesday.
MPS was due to close its four-day recapitalisation bid on Thursday, and there were strong expectations that it was going to fall short of the five billion-euro target, prompting the need for a top-up from the government.
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In an updated filing on its rights issue, the Tuscan bank said it had only four month's worth of liquidity left, down from 11 months communicated last week.
Italian finance minister, Pier Carlo Padoan said the impact on savers of a state bailout would be "minimal or non-existent".
The new Italian prime minister, Paolo Gentiloni, has vowed not to let the bank fail, for fear that its collapse could topple the rest of Italy's heavily indebted banking sector.
