Italy's biggest retail bank Intesa Sanpaolo has set tough conditions on an offer to buy the healthy assets of two Veneto-based banks.
The offer is part of an effort to prevent European authorities from stepping in to wind them down.
Intesa said it would only take on the two banks at a symbolic price if they were stripped of all bad loans and legal risks, and if the deal had no impact on its own capital ratios and dividend policy.
A source close to the matter said Intesa, the only bank known to have made a bid so far, had offered €1.
Italy is scrambling to prevent the two banks, which have a capital shortfall of €6.4 billion and are bleeding deposits, from being wound down under European banking rules.
Those rules would impose losses on senior bondholders and large depositors - a politically unpalatable prospect in Rome ahead of national elections next year.
Pressure to find a solution has increased since Spain's Banco Popular was rescued by Santander this month in a deal orchestrated by European authorities.
In Popular's case, no state money was used and Santander is seeking around €7 billion of capital from shareholders to help to it take on Popular.
Intesa's role is part of a new plan by the Rome government that would effectively liquidate Banca Popolare di Vicenza and Veneto Banca with the help of taxpayer money to reduce losses for the banks' private investors.
The plan involves splitting the two banks' assets into "bad" and "good" banks.
The bad bank would take on their soured debts and be financed partly by the state, with junior bondholders and shareholders also taking a hit, sources have said.
But the conditions set by Intesa, viewed as the most likely taker for the healthier parts of the two banks, are so demanding that a deal risks being seen as gift to the Milanese bank.
It is also not clear whether the European Commission, which must authorise the use of state aid, would approve the plan.
Intesa said that for its offer to proceed legislation was needed to ensure it would be shielded from all integration and restructuring charges as well as "risks, obligations and claims due to events occurred prior to the sale."
Such charges would cover among other things the heavy job cuts that are expected at the two banks, which currently employ around 11,000 people in total.
They would also cover legal risks stemming from a scandal over the mis-selling of shares by the two banks to their own customers in exchange for loans.
The cost to the Italian state could be about €5 billion, one banker familiar with the matter said.
The European Commission declined to comment. The Italian treasury had no immediate comment.
The two banks, from the north-eastern Veneto region, have a combined market share of only 3% at the national level, with loans totalling about €40 billion.
They had planned to merge, creating Italy's eighth-biggest bank by assets.
