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ECB rejects bailout extension for Monte dei Paschi as shares plummet

The European Central Bank has thrown the rescue plans for the world’s oldest bank into doubt by rejecting its request for more time to prepare a €5bn fundraising, leaving it more likely that Italy will be forced to step in and rescue the firm.

Monte dei Paschi di Siena, which failed the Europe-wide stress tests over the summer and has been racing to arrange new financing, had asked the ECB for an extension until January 20.

The central bank has rejected its plea and remains in talks with the Italian Treasury and MPS chairman Alessandro Falciai about the way forward. It is not clear whether the eventual rescue would hit the households that own MPS bonds, which may be wiped out in a “bail-in” structure.

New European rules only allow a government to bail out a bank with state funds if they also impose losses on stakeholders.