Raoul Weil, a Swiss citizen who used to be UBS's third-highest ranked executive, was arrested by Italian police on October 19 while on a private visit with his wife to Bologna, Italy, and is facing possible extradition to the United States.

The 53-year-old banker was charged five years ago in the United States with conspiring with unnamed UBS executives to help 17,000 Americans conceal $20 billion in Swiss bank accounts. He was declared a fugitive a few months later.

He disputes the charges, for which he faces up to five years in jail in the United States.

In a landmark 2009 settlement that marked a break with Switzerland's traditional bank secrecy, UBS, the world's largest wealth manager by assets, was fined $780 million and agreed to hand over the names of some U.S. clients with secret Swiss bank accounts to avoid facing criminal charges.

Weil, who at the time was in charge of UBS' banking services to the world's wealthy, has spent 36 days in Bologna's notoriously overcrowded Dozza jail, where inmates awaiting trial share 10-square-metre cells.

A July report by Bologna authorities said more than 900 prisoners were being held at the crumbling prison, which has a maximum capacity of 497.

At a closed-door hearing on Friday, Weil's lawyers had asked the Bologna court to place Weil under house arrest, with electronic tagging, a source told Reuters on condition of anonymity.

The judge rejected the request, fearing Weil could escape abroad, the source said.

Weil's native Switzerland is less than three hours drive from the northern Italian city of Bologna. Electronic tagging is not common practice in Italy.

The United States has not yet submitted a formal request to extradite Weil and must do so by early December for Italy to consider it. Once the request is submitted, the Italian judiciary must assess it, which could mean more weeks or months of prison in Italy for Weil.

The chances of extradition for Weil are high as Italy has cooperated with the United States in the past except over crimes which carry the death penalty, which is banned in Italy.

Weil, who is the subject of an international arrest warrant, checked in with his wife at the 'I Portici' hotel in central Bologna on October 18.

As is customary in Italy, the hotel passed Weil's identity details on to local police, triggering an alert and prompting the police to arrest him.

Weil, who left UBS after being indicted, is chief executive of Reuss Private Group, a Swiss wealth management firm.

(Additional reporting by Valentina Accardo; editing by Jason Neely)

By Lisa Jucca