The European Central Bank (ECB) and the Bank of Italy have approved the merger between Italian lenders Banco Popolare and Banca Popolare di Milano.

The merged bank will have more than €171bn in assets, making it Italy's third-largest bank.

The combined entity will be headquartered in Milan and Verona. It will comprise 2,500 branches, employ over 25,000 staff and serve 4 million clients.

Banco Popolare shareholders will own 54% of the combined group, while the rest will be owned by Banca Popolare di Milano shareholders.

The all-share deal, announced in March 2016, is now subject to shareholder approval.

The deal was previously delayed as the banks struggled to meet higher capital requirements. However, in June 2016, Banco Popolare raised the €1bn it needed to complete the merger.

The Bank of Italy said that “based on the outcome of its due diligence and in the absence of objections by the European Central Bank, has issued the authorization for the merger.”