Italy is eyeing a private sector rescue of Monte dei Paschi di Siena, Italy's third-largest bank by assets, in an attempt to sidestep tough EU curbs on bailouts, according to senior bankers and European officials.

Rome's main options, however, involve the heavy involvement of the state-backed bank Cassa Depositi e Prestiti, raising the risk that the intervention will ultimately run foul of EU curbs on state support.

The push comes as Italy prepares for the fallout from critical bank stress tests on July 29th and desperately seeks to avoid a stand-off with Brussels over the use of state money to prop up failing lenders.

Rather than inject state money directly into Monte Paschi as originally planned, Italy is exploring ways to buy out its bad loans at favourable rates with money from private and state-backed institutions. This would use the existing privately backed fund, called Atlante, and would not need preapproval from Brussels.

The terms of any intervention, however, would be closely watched by Brussels to ensure it involved no hidden state support.

– Copyright The Financial Times Limited 2016