GETTY Monte Dei Paschi Di Siena Banca is in big trouble

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Experts have wildly underestimated the rescue package needed for Monte Dei Paschi Di Siena Banca, with financers initially looking to source £4.26bn. But the liquidity crisis affecting the bank was made worse by the constitutional referendum put forward by former Italian Prime Minister Matteo Renzi who has since resigned. According to reports the delay in a possible state bail out caused by the Italian referendum cost a whopping £3.2bn now rescuing the bank over its capital shortfall will cost it dear.

GETTY Monte Dei Paschi Di Siena Banca could end up going bust

State funds are only intended as a last resort, and that is why the bar is set high Jens Weidmann, president of the Bundesbank

New Prime Minister Paolo Gentiloni approved £17bn in public funds to help stabilise his country's most fragile financial institutions last week. All of Italy's banks have been hit by "non performing loans" (NPLs) which are made up of Tier 3 products which are years old and have been sold on repeatedly to those willing to take them on. Like a black hole of cash and sometimes compared to the card game Old Maid, the NPL's make up products known as derivatives, which banks buy and trade on and are sometimes swapped.

GETTY The ECB is hoping the fog will lift around the Euro

Yesterday the ECB reported to the Italian finance ministry the bank suffered from “rapid deterioration” in liquidity between November 30 and December 21. This period covered the Italian referendum which took place on December 4 and led to Renzi stepping down and a change in the Italian government administration being led by Mr Gentiloni on December 12. Last week the bank made yet another futile attempt to raise cash from investors through a bond sale but ultimately failed.

GETTY Marco Morelli is the CEO of Europe's oldest bank which needs a massive bailout

Bankers at Monte Dei Paschi Di Siena Banca have been in talks with Wall Street lenders including JP Morgan about a potential buy out however those talks have not progressed for months. The have been lobbying hard for a bail out from the European Central Bank, run by former Bank of Italy Governor Mario Draghi, but so far have faced resistance from Germany who would prefer the banks to be wound down.

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