Italian Finance Minister Pier Carlo Padoan said the government could pay as much as 17 billion euros ($19 billion), although the immediate cost would be a little over 5 billion euros.

Some 4.8 billion euros will be immediately earmarked to "maintain capitalization” of the retail bank Intesa Sanpaolo, which will take on the banks' "good" assets. A further 400 million euros will be set aside as a "guarantee" to Intesa.

The European Commission (EC) quickly approved the plan: "The European Commission has approved, under EU rules, Italian measures to facilitate the liquidation of BPVI and Veneto Banca under national insolvency law," the EU's executive arm said in a statement on Sunday.

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The rest of the cash - some 12 billion in guarantees - would be used to cover a huge hole in the finances of Veneto Banca and Banca Popolare di Vicenza, due to bad loans.

Seeking to reassure bank customers, Padoan said there would be "normal operations at the teller windows” on Monday. He also insisted that some of the costs might eventually be recouped.

The European Commission on Sunday approved Rome's plan to shore up the banks.

"The European Commission has approved, under EU rules, Italian measures to facilitate the liquidation of BPVI and Veneto Banca under national insolvency law," the EU's executive arm said in a statement.

Guarantee against disorder

Prime Minister Paolo Gentiloni defended his government's swift action, claiming that a "disorderly” failure of the two banks could endanger Italy's slow economic recovery. He said the move, decided at a special cabinet meeting on Sunday, was intended more to help account holders and savers than bank employees. Some 3,500 to 4,000 bank workers could yet lose their jobs.

On Friday night, the European Central Bank pulled the plug on the two banks, which have been struggling with outstanding loans.

The 19-member eurozone has previously expressed concern at the risky loans sitting on the books of some Italian banks, an issue that the Italian government says it has been trying to address.

Earlier this month, the EU's antitrust authority approved the rescue of Italy's third-largest and oldest bank, Monti dei Paschi di Siena.

rc/sms (Reuters, AP, AFP)