The Italian government on Sunday made 5.2 billion euros ($5.8 billion) of resources immediately available to keep operative two banks that the European Central Bank has deemed “failing or about to fail,” sending them into insolvency procedures.

Premier Paolo Gentiloni defended the swift action by the government as vital for ensuring Italy’s slow economic recovery isn’t derailed by a “disorderly” failure of Veneto Banca and Banca Popolare di Vicenza.

The two banks are based in the northeast Veneto region, one of Italy’s most economically productive. They serve many of the small and medium-sized businesses that are the backbone of the nation’s economy.

Economy Minister Pier Carlo Padoan assured Italians that on Monday “there will be normal operations at the teller windows” when the two banks reopen their doors after the weekend.

The European Central Bank on Friday night pulled the plug on the two troubled banks, which have struggled with high levels of outstanding loans.

The resources approved by the government will facilitate, as widely anticipated, Italian bank Intesa Sanpaolo’s taking on the “good” assets of the two banks.

Gentiloni said the government’s rescue move at an ad hoc Cabinet meeting Sunday afternoon was mainly aimed at saving “account-holders, savers, of these two banks, in favor of those who work in these banks, and in general in favor of the economy of the territory, one of our most important.”

He also deemed the help vital “for the good health of our banking system,” which is seen elsewhere in Europe as a weak point in Italy’s economy.

Banks that can’t issue loans hamper Italy’s businesses from bouncing back, and also pose vulnerability to the eurozone economy as a whole.

Padoan told reporters that the overall price tag for the rescue operation would eventually be nearly 17 billion euros ($20 billion) because it would include Italian government “guarantees” for 12 billion (some $13.5 billion).

He defended the government actions as “burden-sharing, not a bail-in,” saying “all this is in full respect of EU rules.”

“The government has utilized European rules in the best possible way,” Padoan said.

In the evening, the European Commission said in a statement from Brussels approved the measures taken by Italy.

The EU’s commissioner in charge of competition policy, Margrethe Vestager said that “Italy considers that state aid is necessary to avoid an economic disturbance in the Veneto region,” following the liquidation of the two banks.

“Italy will support the sale and integration of some activities and the transfer of employees to Intesa Sanpaolo,” and said the action will “also remove $18 billion ($20 billion) in non-performing loans from the Italian banking sector and contribute to its consolidation.”

Intesa Sanpaolo’s CEO Carlo Messina said in a statement sought to justify the acquisition. “Without the offer presented by Intesa Sanpaolo — the only one submitted in the auction held by the government — the crisis of the two banks would have had a significant impact on the entire Italian banking system, with severe consequence for the economy that would have put at risk the country’s economic recovery.”

Padoan insisted there would be no impact on public finances. That’s because a government decree of several months ago already provided for the resources for bank rescues.

With government taking on the liquidation of so-called “bad” assets of the two banks, some of the costs might be recouped eventually, Padoan noted.

He added that small account holders and senior bond holders would see their funds “100 percent repaid.”

But subordinate bond holders could face risks. Also at risk are bank employees’ jobs. Italian media reported that Intesa Sanpaolo’s taking over the troubled banks could lead to thousands of layoffs and the closing of hundreds of small branches.

Source: Associated Press