January 12, 2017 / 9:36 PM / 6 months ago

Euro zone finance ministers to discuss legality of Monte Paschi rescue - source

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A Monte dei Paschi di Siena advertisement is seen on a screen in a bank window in downtown Milan, Italy, January 14, 2016.Stefano Rellandini/File Photo

BRUSSELS (Reuters) - Euro zone finance ministers will discuss on Jan. 26 the "compatibility" of Italy's bailout for bank Monte dei Paschi di Siena (BMPS.MI) with European Union rules, an official in the bloc told Reuters on Thursday.

The comments cast doubt on the rescue plan for the ailing bank, Italy's third largest lender. Rome decided in December to salvage Monte dei Paschi after a plan to raise capital in the markets failed.

The bank was the weakest among top euro zone banks in a stress test ran last year by the European Central Bank.

"The Eurogroup will discuss the compatibility with EU rules of the Italian plan to rescue banks," an EU official said after a meeting of euro zone envoys in Brussels on Thursday.

The issue is on the preliminary agenda for the euro zone finance ministers' meeting later this month, the official said.

Last month, the Italian government authorised a 20 billion euro fund to help lenders in distress - first and foremost Monte dei Paschi.

The plan uses an exception on new EU rules on banking liquidation to avoid heavy losses for bank creditors before public money is disbursed.

While it still awaits a green light from EU authorities, the plan envisages only limited losses for the bank's creditors and compensation to protect retailer investors.

After the rescue was announced, Germany, the euro zone's largest economy, raised concerns about the plan's compliance with EU rules.

Reporting by Francesco Guarascio; editing by Ralph Boulton

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