Four Italian local banks have been rescued from bankruptcy with a 3.6 billion euro ($3.8 billion) rescue package that came into effect yesterday. The government took the decision late on Sunday, after winning approval from the European Commission, the European Union's executive arm which regulates aid to the banking sector. Banca delle Marche, Banca Popolare dell'Etruria e del Lazio, Cassa di Risparmio di Ferrara and Cassa di Risparmio della Provincia di Chieti will be cleared of 8.5 billion euros worth of bad loans and recapitalized.

The non-performing loans - loans that are either in default or close to default - will be transferred into a fund managed by the Bank of Italy. This fund, a so-called 'bad bank', will write down their value to 1.5 billion euro and will try to recoup some of the money either directly or by selling them to credit-recovery companies.

According to the Bank of Italy, the operation will cost an estimated 3.6 billion euros and will be covered by 18-month loans provided by three larger and more stable Italian banks: Intesa Sanpaolo, UniCredit and UBI. "The state, and hence taxpayers, sustain absolutely no cost in the process," the central bank said in a statement.

A former general manager of UniCredit, Roberto Nicastro, was tasked with overseeing the sale of the rescued lenders - which have for some time been under special administration by the Bank of Italy - "to the highest bidder by transparent market-based procedures."

Cleaning up the banking sector is seen as a key priority to revive the Italian economy, which is slowly emerging from a record-length 2011-2014 recession.

Economists say that healthy firms are struggling to obtain financing from banks because lenders are both saddled by the recession-linked legacy of too many bad debts and constrained by stricter EU capital requirements, which limit their capacity to give fresh credit.