The approval is contingent on the sale of some of the banks' businesses to Intesa Sanpaolo, the Commission said. All deposits will be protected, it said.
The European Central Bank announced last week that the two banks were failing or likely to fail. The Single Resolution Board then decided that resolution action was not warranted in either case.
Under EU law, national insolvency rules apply in these circumstances and it up to the relevant national authority to wind up the institution under its national insolvency law. If the country considers public support to be necessary to mitigate the effects of the bank leaving the market, EU state aid rules apply, the Commission said.
These rules require that shareholders and subordinated bondholders contribute to the costs. Senior bondholders, however, are protected, and depositors are fully protected, it said.
Italy believes that winding up the banks would have a serious impact on the economy in the regions where they are most active. It therefore plans to enable the sale of parts of the two banks' activities to Intesa, including the transfer of employees. Italy selected Intesa as the buyer in "an open, fair and transparent sales procedure", the Commission said.
The Italian state will pay €4.8bn to Intesa, and offer state guarantees of around €12bn, mostly on Intesa's financing of the liquidation mass, the Commission said.
Existing shareholders and subordinated debt holders have fully contributed to the costs, reducing the cost of the intervention for the Italian state, it said.
Banking expert Tony Anderson of Pinsent Masons, the law firm behind Out-Law.com said: "It will be interesting to see what impact such a decision may have on the price of subordinated debt into banks going forward given the inherent discretion involved in deciding what are ‘failing and likely to fail’ banks."