Italy sets up 1.3 billion euro fund to cover Carige rescue costs

The Carige bank logo is seen in Rome, Italy, April 16, 2016. REUTERS/Stefano Rellandini

ROME (Reuters) - Italy has set up a 1.3 billion euro ($1.5 billion) fund to cover potential costs of emergency measures approved on Monday to shore up ailing bank Carige CRGI.MI.

A decree that came into force on Tuesday authorized the Treasury to provide guarantees on up to 3 billion euros in new bonds to be issued by Banca Carige by the end of June. The cost of the guarantees can be of up to 300 million euros.

Italy also set aside 1 billion euros to underwrite Carige shares by the end of September under the same 'precautionary recapitalization' scheme that it used two years ago to rescue the country's third-largest lender, Monte dei Paschi di Siena BMPS.MI.

Carige has said it is unlikely to turn to the state for capital while it plans to apply for the debt guarantees.

Rome’s populist government stepped in to prop up Carige, the country’s 10th largest bank, on Monday after it was placed under temporary administration by the European Central Bank last week following a failed attempt to raise private capital.

Reporting by Giuseppe Fonte, writing by Valentina Za; editing by John Stonestreet