Bild: ECB's Weidmann says Monte dei Paschi bailout must be carefully weighed

"The bank has promptly started talks with the competent authorities to understand the methodologies underlying the ECB's calculations and introduce the measures for a precautionary recapitalization", Monte dei Paschi said in its statement.

The Italian government has been preparing for this situation by arranging a €20 billion ($20.9 billion) rescuefund to help prop up Monte dei Paschi and the country's other struggling banks.

A capital injection of €6.5 billion would give the government a 70% stake in the bank.

The remaining 2.3 billion euros should come from the conversion into shares of subordinated bonds held by institutional investors, as required by new European rules for dealing with bank crises.

Rome is now under pressure: On Monday, Monte dei Paschi said the central bank found that its financial position had deteriorated rapidly between November 30 and December 21.

Last Friday, the Italian government approved a deal to bail out Monte dei Paschi after Italy's third biggest lender failed to win investor backing for a desperately needed €5bn fundraising.

The worsening capital and liquidity position at MPS marks a new twist in a long-running saga surrounding the fate of world's oldest bank, which has arguably emerged as the weakest link in the Italian and European banking system.

The latest figure is based on the results of stress tests carried out this year, according to Monte dei Paschi.

Monte dei Paschi raised only about half of the capital independently. The scheme involves a much less drastic hit to investors in the bank than is the case under European Union rules if a bank goes into resolution, when even depositors over €100,000 can be "bailed in". "State funds are only intended as a last resort, and that is why the bar is set high", Weidmann, the hawkish president of Germany's Bundesbank, told Bild.

  • Anthony Vega