An agreement has been reached between Italy and the European Commission on the Banca Monte dei Paschi di Siena regarding a bigger than projected capital hike. Also included would be the reduction of costs and the divestment of large government bond holdings. All these are to be done in order to obtain approval from the European Union for state aid. 

These moves were confirmed by officials from both the bank and the commission. Rome, for its part, had offered EUR4.1 billion worth in state loans to the third largest bank of Italy. The funds would help prop up the ailing lender due to its weak capital position after being embroiled in a derivatives scandal as well as unprofitable Italian bond investments.

The agreement was reached between European Competition Commissioner Joaquin Almunia and Economy Minister Fabrizio Saccomanni. It was done at the sidelines of a business conference being held at Cernobbio, a resort town on the shores of Lake Como in Italy.

Almunia announced, "We have reached a political agreement." He added, "If the capital increase fails, the condition will be the conversion of state aid in bank shares."