The European Central Bank has rejected a request from Italian lender Banca Monte dei Paschi di Siena for more time to raise capital, a person familiar with the matter said, paving the way for the government to step in and rescue the bank.

Italy's third-largest lender had asked for an extension of several weeks to try to conclude a €5 billion ($5.31 billion) equity raising and avoid forcing losses on bondholders, as required under new European Union rules.