Investors, many of them shaken by Britain's vote to leave the European Union, are fretting over the fragile balance sheets of debt-laden Italian banks.
Banca Monte dei Paschi di Siena, or BMPS, is among the banks at the forefront of those concerns with gross bad loans amounting to €46.9 billion ($52 billion).
BMPS shares plummeted by more than 10 percent at one point on the Milan stock exchange. In early afternoon trade they were down 8.9 percent at 0.3483 euros.
Other Italian banks were also down heavily, with top bank Unicredit sliding more than three percent and several others down by a similar margin.
In a draft letter, the Frankfurt-based ECB ordered BMPS to lower its gross bad loans by more than 13 billion euros to a maximum 32.6 billion euros in 2018, the Italian bank said in a statement to the stock exchange.
The central bank also ordered BMPS to present by October 3 its plans to cut the ratio of doubtful loans to 20 percent of the total loan portfolio in 2018.
BMPS said the ECB requirements were in line with plans that the Italian bank had already approved.
Those plans, which focused on a faster process of ridding itself of bad loans, had been submitted at the time for the ECB to assess, the bank said.
"The bank has immediately initiated discussions with the European Central Bank in order to understand all the indications included in this 'draft' letter, and to present its reasoning before the final decision expected by the end of July 2016," BMPS said.