A new fund to free Italy’s banks of bad loans will have at least €2.4bn of firepower, short of the government’s target for now but enough to deal with the immediate problems of Monte dei Paschi di Siena, the country’s embattled third-largest lender.

Italian banks and insurers have pledged at least €1.6bn in new money to Atlante 2 — as the private fund sponsored by the Italian government is called — ahead of Monday’s deadline for its first closing.

In addition to the new contributions, Atlante 2 will also be funded by at least €800m transferred from Atlante 1, a similar fund created earlier this year to help rescue two struggling Italian banks in the northeastern region of Veneto.

The amount committed so far is below an expected minimum target of about €3bn, after a group of private pension funds — which had expressed an interest in placing €500m into Atlante 2 — balked at the opportunity in recent days. However, people involved in the fundraising say that additional commitments are still likely even after the first closing of the fund, so the final amount could yet be higher.

Atlante 2 is considered key to resolving Italy’s banking troubles because it is designed to mop up the mezzanine tranches of the non-performing loan portfolio of MPS. The Tuscan lender was the worst performer in European-wide banking stress tests last Friday.

The clean-up of MPS’s troubled loans is the precursor to a €5bn capital raising by the end of the year that Italian banking executives and government officials are counting on to save it from possible collapse and state intervention.

Atlante 2 will only use €1.6bn of its money to underwrite the clean-up of MPS’s troubled loans, with the remainder to be stored for further deals that may be required to assist other troubled Italian banks.