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     LONDON (MNI) - The Bank of Italy has heightened its opposition to new rules
calling for bondholders to bear the brunt of bank failures amid other policy
shifts as it comes under pressure from the Italian government to work more
directly to change EU rules to favour of the country's banking system.
     The Bank has also sharpened criticism of opponents of eurozone-wide deposit
insurance and thrown its weight behind the government's drive for a revision of
state aid rules.
     Its changes in language come as Italy's governing coalition, which has
slammed the BOI's record as a banking supervisor, pushes for it to adopt a more
critical approach towards Germany and to defend national rather than
pan-eurozone interests.
     The government respects the central bank's independence but also believes
that as a major European Central Bank stakeholder it should more directly pursue
policies in benefit of Italian banks, according to key economic officials at the
populist 5-Stars and far-right League parties.
     "It's about time the BOI starts advocating for new banking rules at EU
level," said one source, expressing confidence that "things will change" at the
central bank.
     "Not everything can be decided and controlled in Frankfurt."
     The government is using its power to appoint new Bank of Italy board
members to put pressure on the institution. It has failed to reappoint Deputy
Governor Luigi Signorini, whose term expired in February, and people close to
the Bank fear that another two of the Board's five spots will be left vacant
when their current holders' terms end in May, potentially affecting its ability
to perform key functions.
     The governing coalition has taken a similar tack with Italy's insurance
authority IVASS, controlled by the central bank, which lost two board members
after their mandates expired without new appointments being made.
     While not acknowledging that government pressure was responsible, a person
familiar with Bank of Italy thinking noted how its criticism of European rules
on bailing in bondholders in the event of bank failure has become more
forthright in recent speeches and papers. Another person linked to the
institution said that life for senior officials at the Bank has been difficult
under the current government.
     The Bank of Italy had long held that the bail-in measures included in the
EU's Bank Recovery and Resolution Directive, had been introduced too abruptly,
without giving lenders time to adjust. This language has now hardened, with the
BOI's head of banking supervision calling the rules damaging and "practically
unenforceable" in a speech earlier in March.
     Carmelo Barbagallo's comments came as the Italian government seeks to ditch
the bail-in rules, never applied in Italy, and to revise at an EU-level existing
legislation against state aid forbidding any public rescue of ailing banks.
     The BOI is also calling for European rule changes to allow the creation of
a public deposit insurance body to back the industry-funded interbank deposit
protection fund, and of an asset management company to support an orderly and
gradual disposal of NPLs. Both of these stances resemble government policy.
     There are even signs that the government's confrontational approach towards
its EU partners is also beginning to filter through into the usually cautious
language of the Bank of Italy.
     Deputy Governor Salvatore Rossi openly pointed at "the governments of the
countries of Northern Europe" when he said in a recent speech that resistance to
burden-sharing arrangements across the eurozone effectively serves to defend the
banks of some countries from troubled lenders in others.
--MNI London Bureau; +44 203 865 3829; email:
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