Bank of Italy reform in spotlight after latest bank bailout

By Giuseppe Fonte and Gavin Jones

ROME (Reuters) – Italy’s ruling coalition may change the way the country’s central bank exercises its supervisory powers, a senior politician said on Friday, following the costly bailout of a small southern bank.

In the latest of several state rescues of ailing lenders, the government this week approved an emergency decree granting a lifeline of up to 900 million euros ($992 million) to cooperative bank Popolare di Bari.

Successive Italian governments, with support from healthy banks, have spent more than 20 billion euros to manage a raft of banking crises since 2015. In many, politicians have blamed the Bank of Italy and its governor Ignazio Visco. Both have always denied responsibility.

Critics say a key factor in Popolare di Bari’s crisis was its 2014 acquisition of troubled rival Tercas. The takeover was authorized by the central bank but further weakened Pop Bari by increasing its bad loan burden.

Andrea Orlando, deputy leader of the co-ruling Democratic Party (PD), said the Pop Bari bailout suggested something was not working in the way the central bank policed the country’s lenders and the coalition needed to look into possible changes.

“If our suspicion is correct, we need to separate the Bank of Italy’s supervisory structure from its other functions,” he told Reuters in an interview.

“The Bank of Italy is both a player and a referee, so a clarification of the rules may be needed,” he added, referring to the fact that the central bank both polices the banks and rules on mergers.

The Bank of Italy declined to comment for this article.

This week it blamed the European Commission, saying legal objections in Brussels to the merger with Tercas had delayed the operation, “with significant negative consequences for both banks.”

The other ruling party, the anti-establishment 5-Star Movement, has been more aggressive in its proposals to reshape the central bank.

Some of its lawmakers want to give politicians the power to name the bank’s board, ending the current system by which appointments are made mainly internally, a prominent party source told Reuters, asking not to be named.

“I think in the next few months we need to launch a reform of the Bank of Italy’s governance,” 5-Star leader Luigi Di Maio told state television network RAI this week, without giving details.

Orlando said the PD would not back 5-Star if it insisted on trying to limit the central bank’s autonomy in appointments, potentially opening a new source of tension among ruling parties already split on issues from the economy to migrant rights.

The proposals for changes at the central bank are likely to come to a head in a parliamentary committee to be set up early next year to investigate the reasons for the succession of collapses at Italian lenders.

Economy Minister Roberto Gualtieri, from the PD, said on Thursday that the government would clarify “to what extent there have been shortfalls on the part of the supervisor.”

(editing by John Stonestreet)


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