Mr Catalfamo hopes an investor can be found

Paolo Catalfamo, head of Invesmart, the Italian firm that controls Union banka, said he was in talks with a number of foreign investors - including Italian finance house Sanpaolo IMI - over a possible rescue package.

Union banka closed its doors at the end of last week, and the central bank began moves to withdraw its licence, after it admitted unmanageable cash-flow problems.

The Union banka affair has been a particular embarrassment for the Czech Republic, which has cultivated a reputation for economic stability after a string of financial scandals in the early 1990s.

Tricky deal

Sanpaolo IMI is only one of a number of foreign players looking to get into the buoyant Czech banking sector.

Other potential suitors for Union banka include Italian Unicredito and Austria's Raiffeisen Bank.

But a deal may be hard to push through quickly: Union banka has potentially enormous bad debts on its books, the result of the takeover of three small banks in 1996.

And Czech politicians are starting to ask how Union banka's troubles could have been hidden for so long.

The summary and unexplained dismissal of two prominent Union banka board members on Monday has fanned the flames of rumour.

Bad banks

The collapse of Union banka comes at a time when it seemed the Czech Republic's worst financial problems were over.

Although the country has long boasted a strong economy, and has remained the favourite East European destination for foreign investors, its rickety banking sector was its Achilles' Heel.

Some 18 banks lost their licences during the 1990s, and the state has provided more than 500bn koruna (�11bn; $17bn) in bail-out funding.

Union banka, small, privately-owned and foreign-managed, seemed to be the sort of bank that the Czech Republic should have encouraged.