By Paola Arosio and Stefano Bernabei
MILAN/ROME (Reuters) - Italy is considering setting up a state-backed fund that would help troubled lenders by buying up bad loans and plug capital shortfalls, three sources close to the matter said, as the government looks for ways to shore up its ailing bank sector.
The governor of the Bank of Italy, the economy minister and the chief executives of banks UniCredit (MI:CRDI), Intesa Sanpaolo (MI:ISP) and UBI (MI:UBI) discussed the idea at the prime minister's office on Tuesday, the sources said.
Italy's banks have 360 billion euros ($410 billion) in bad loans, a third of the European total and equal to a fifth of the nation's gross domestic product. They have also fared worst in financial strength tests carried out by the European Central Bank.
No agreement was reached at Tuesday's meeting and the parties are expected to meet again soon, the sources said. Also some of the officials voiced doubts about whether such a plan may work. One issue is whether the European Commission would consider that the vehicle may violate state aid rules.
The fund would be majority owned by private investors, the sources said.
State lender Cassa Depositi e Prestiti (CDP) and a representative of banking foundations also attended the meeting, they said.
A government spokesman declined to comment on the meeting.
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