Top Italian banks Intesa Sanpaolo and UniCredit will contribute €1 billion each to a planned fund being set up by the country’s financial institutions to shore up weaker lenders, a source with direct knowledge of the matter said.

State lender CDP will put in €500 million, smaller banks will contribute between €500 and €700 million, banking foundations will contribute around €520 million and insurers a further €500-700 million, the source said.

In total, the fund is aiming to gather contributions for €5-6 billion, the source said, adding 70 per cent of those funds would be used to help plug capital shortfalls by buying into cash calls at ailing lenders.

The rest of the resources should be used to help banks get rid of bad loans

The rest of the resources should be used to help banks get rid of bad loans, the source said. The fund may need to invest €2 billion in upcoming rights issues at Banca Popolare di Vicenza and Veneto Banca if there are a lot of unsold shares, and may end up taking control of at least one of the lenders, the source said. Italian banks, insurers, banking foundations and state lender CDP agreed on Monday to set up the fund to help ailing banks in a state-orchestrated plan to avoid a crisis in the eurozone’s fourth-biggest banking sector.

The European Commission is in close contact with the Italian government over plans to set up the fund, a spokesman for the executive body said yesterday.

“At this stage, the Commission is not in a position to comment on it from a state aid perspective,” the spokesman said, adding Brussels had received only preliminary information on the plan set out by the country’s main financial institutions.