ROME, Feb 16 (Reuters) - Italy's parliament approved on Thursday a government plan to create a 20 billion euro ($21.25 billion) fund to support the country's troubled banks, including Monte dei Paschi di Siena.
The government unveiled the project in December and the parliamentary approval means that funds can now be released to a sector weighed down by 350 billion euros of bad loans -- a third of the euro zone's total.
The first bank likely to benefit will be Monte dei Paschi, the world's oldest bank, which last year failed to win investor backing for a desperately needed capital increase.
The government readied the fund in December on the understanding that the struggling lender had a capital shortfall of 5 billion euros, but the European Central Bank has since estimated the gap at 8.8 billion euros.
Despite this jump, ministers have repeatedly asserted that their 20 billion euro fund will be large enough to sort out problems across the country's banking sector.
The CEO of Popolare di Vicenza told Il Sole 24 Ore newspaper on Thursday that besides Monte dei Paschi, the state was also expected to step in to help both his own lender and the neighbouring Veneto Banca.
The two Veneto-based regional banks, rescued by bailout fund Atlante last year after an attempt to raise money on the market failed, are planning to merge.
"The size of the (state) intervention is not known yet and will depend on talks with the ECB and talks between the Treasury and Atlante," CEO Fabrizio Viola told the financial daily. ($1 = 0.9412 euros) (Reporting by Crispian Balmer)