MILAN (Reuters) - The European Union will have no reason to object to a rescue of Popolare di Bari, an Italian government minister said on Monday as the Bank of Italy highlighted the central role the cooperative bank plays in the country’s struggling south.

People exit the Banca Popolare di Bari bank after Italian government approved a bailout for the ailing cooperative lender, in Rome, Italy December 16, 2019. REUTERS/Guglielmo Mangiapane

Late on Sunday, Rome passed emergency measures worth up to 900 million euros ($992 million) to prop up Popolare di Bari, the biggest lender in the south, after its management said it urgently needed 1 billion euros in capital.

Italy’s coalition government has approved a cash injection into Banca del Mezzogiorno-Mediocredito Centrale, a state-owned regional development bank which will then help to rescue Popolare di Bari.

Mediocredito will use 500 million euros to buy into a capital raising at Popolare di Bari setting aside the rest for future requirements, a source said on Sunday.

Italian banks will be asked to fund the rest of the bailout through the FITD deposit guarantee fund which recently financed a rescue package for Genoa-based bank Carige CRGI.MI.

Regional Affairs Minister Francesco Boccia said the FITD contribution was necessary to comply with EU state aid rules.

“The measures chosen ... allow us to meet all EU rules,” he told Radio 24, when asked whether Brussels could object to the scheme after clearing the German rescue of NordLB this month.

The NordLB bailout has boosted expectations in Italy that the government could win further leeway in state aid rules over banks.

EU competition authorities did not respond to a request for comment.

The EU tightened such rules after the global financial crisis to shield taxpayers from costly bailouts.

Forced to tackle a string of banking crises under the new “bail in” rules that require hitting investors before using state money, Italy has faced problems because thousands of small savers had put their money into bonds and shares of local banks.

Rome, which has spent some 20 billion euros to help its banks since 2015, has partly limited losses for retail investors by getting EU approval for compensation schemes or for winding up smaller lenders under domestic liquidation rules.

The Bank of Italy said Popolare di Bari customers had financed most of a 550 million euro capital strengthening it completed in 2014-2015 to fund the rescue of rival bank Tercas.

Like other regional banks, Popolare di Bari never recovered from Italy’s worst post-war recession which bankrupted thousands of businesses, saddling banks with a mountain of unpaid loans.

Popolare di Bari’s problem debts stand at 23% of total lending this year, up from 13% in 2011.

The Bank of Italy warned Popolare di Bari’s home Apulia region and neighboring Abruzzo and Basilicata could not afford to lose a bank with a 10% market share and 100,000 local companies among its clients.

“They have the best offering for a small business like mine. I’m obviously a little worried though I’m not thinking of moving my money for now,” said Eluana Palombella, who owns a clothing shop in Taranto.

But Popolare di Bari’s rescue has caused tensions between the 5 Star Movement and the center-left Democratic Party, partners in Italy’s coalition government led by Prime Minister Giuseppe Conte.

The latest crisis also calls into question the Bank of Italy’s supervisory role, giving ammunition to both some in 5-Star and the right-wing League, which has stepped up attacks over another bank bailout.