Italy's cabinet has approved a state-bailout for the country's third-largest bank, Monte dei Paschi di Siena. Prime Minister Paolo Gentiloni said, his government had authorised a 21 billion dollars fund to support Italy's embattled banking sector. The announcement came after Monte dei Paschi had failed to raise 5 billion euros from private investors. <br/><br/>The Italian bank said, it would request a capital injection from the state to stay afloat. Under new EU rules on bank bailouts, the bailout will entail a forced conversion of the bank's junior bonds into shares. <br/><br/>A state bailout risks losses for thousands of ordinary retail investors. Small investors are estimated to hold some two billion euros of Monte dei Paschi's bonds.<br/><br/>However, the government will need to stick to new European Union rules designed to stop tax payers bearing the brunt of supporting weak banks. The Italian parliament had already authorised the government to create a fund to prop up the bank sector.