Investors are reluctant to back Monte dei Paschi di Siena's bid to raise billions of euros, leading fund managers and a source with knowledge of the matter told Reuters, posing a huge challenge for a new CEO seeking to save the Italian bank. The lender, which is expected to name a new chief executive on Wednesday, must raise up to 5 billion euros ($5.6 billion) as part of an emergency rescue plan to stave off the risk of being wound down and a wider banking crisis that would send shockwaves across Europe.

Banca Popolare di Bari is poised to test Italy's new bad loan guarantee, but questions remain over whether it can pave the way for other banks seeking to securitise soured debt, Reuters reported. Earlier this month, Bari announced it had structured a 140.5m securitisation backed by non-performing loans, which it plans to sell to the public market with the help of Italy's new state guarantee, known as Gacs.

As Italy and Europe more broadly struggle to come to grips with an escalating problem with bad loans, a new paper by economists connected to the Center for Economic Policy Research, a European policy shop, highlights the extent to which Italy’s main banks — known to be the weakest in the eurozone in terms of cash reserves — have stepped up their lending to the country’s most troubled companies, the International New York Times DealBook blog reported.

The best that can be said for Italy’s latest plan to rescue its third-largest bank is that it might just work, The Wall Street Journal reported. Monte dei Paschi di Siena announced on Friday a complex deal that would see it offload €40 billion ($44.7 billion) of its most toxic bad debts—equivalent to around 15% of its loan book—into a newly created privately-funded vehicle, paving the way for the lender to raise around €5 billion in fresh capital.

Over dinner with reporters at an upscale Roman hotel in November, Pier Carlo Padoan, Italy’s finance minister, was asked what he would do if he had a magic wand to help his country’s sluggish economy. The answer was telling: he would wipe away the huge stock of non-performing loans that had accumulated on the balance sheets of Italy’s banks during the recession.

Italy was last night racing to secure a privately backed bailout of Monte dei Paschi di Siena, the most exposed of the country’s troubled lenders, including a plan to raise €5bn of fresh capital so as to avert nationalisation, according to bankers and European officials, the Financial Times reported.

Angela Merkel dismissed concerns of an escalating crisis surrounding Italian banks and expressed confidence that talks between Rome and Brussels allowing a rescue of struggling financial institutions could be “resolved well”, giving a boost to Italian banking shares, the Financial Times reported.

Italy has been warned it must abide by “strict” EU rules for rescuing teetering lenders, limiting Rome’s ability to pump public money into the country’s financial sector, the Financial Times reported. Jeroen Dijsselbloem, head of the eurozone’s committee of 19 finance ministers, said on Monday that any Italian plan would have to respect EU rules that force losses on creditors before they can be bailed out with taxpayer funds.

Even as Europe grapples with repercussions of Britain’s vote to leave the European Union, a dispute over tens of billions of dollars is also threatening to roil the region’s $16 trillion economy, the International New York Times reported. The Italian government, according to some estimates, needs to spend $45 billion to shore up its banks burdened with bad loans.

The price of a bond issued by Monte dei Paschi di Siena, Italy’s third-largest lender, plunged more than a tenth on Tuesday in the latest sign of growing investor alarm over bad debts within the country’s financial institutions, the Financial Times reported. Anxiety has spread from stock markets, where shares in the world’s oldest bank have fallen by more than a quarter this week to reach a record low, after the European Central Bank demanded it shed another €10bn in bad loans.