MNI INSIGHT: Bank Of Italy Faces Paralysis Over Gov't Delay

     ROME(MNI) - Officials fear the Bank of Italy may cease to be able to

function by May 9 if the government fails to confirm four new board appointments

before the mandate of two current members expires, MNI understands.

     "Of the five-member board only governor Ignazio Visco and deputy Fabio

Panetta have secured another mandate and with just two standing members, the

central bank cannot operate anymore", warned people familiar with BOI thinking.

     "It would enter into a paralysis, unable to perform all its functions,

including bank supervision. It's a very critical situation, without precedent in

Italian history."

     On May 9 the mandates of both outgoing Senior Deputy Governor Salvatore

Rossi and board member Valeria Sannucci will expire.

     "The government might hold a cabinet meeting to decide the appointments by

the end of this week, perhaps even tomorrow night but the truth is nobody knows.

We've been in limbo for months, and the BOI is holding its breath as there are

appear to be differences between the ruling coalition parties over at least two

new appointments," said the sources.

     More than a month has passed since an informal deal was struck between the

government and Visco, who proposed three new nominees. But, despite the

importance of ensuring the BOI's operational stability the board renewal process

is still pending a government decision. In order to become effective all new

appointments require a green light from the Council of Ministers and then a

decree from head of state Sergio Mattarella.

     Sources expressed concern that political pressure and interference have

never been so strong as under the coalition government made up of the populist

Five-Starts Movement the far-right League. The board renewal deadline also comes

ahead of the central bank's annual shareholders' assembly at the end of this

month, when budget and an overview of performance will be assessed.

     It is not yet certain whether the appointment of former board member Luigi

Signorini, whose mandate expired in February, and that of Alessandra Perrazzelli

-- seen by Five-Stars as too close to the League -- will be confirmed by the

council of ministers.

     Even the fate of a third new member designed by Visco, Daniele Franco,

director of the Treasury's State General Accounting Department and a former Bank

of Italy official, could be on the line. The parties have not yet reached an

agreement over who would replace Franco at the Treasury, with both the

Five-Stars and the League advocating for a more "lenient" person to take over

the key role.

     Only the promotion of Fabio Panetta as Senior Deputy Governor in

replacement of Rossi is expected to be approved by the government.

     Panetta was recently granted a fresh term, supported by both ruling

parties. As a member of the Single Supervisory Mechanism's Supervisory Board he

has called for changes to EU rules on bailing-in bondholders at failing banks

and for easier timetables for reductions of non-performing loans. In his new

role, Panetta would become second in command to Visco and also chair the

BOI-supervised IVASS insurance authority.

     Five-Stars and the League have regularly attacked the Bank of Italy since

their campaigns for last year's election, calling for the renewal of leadership

they blame for "bad supervision" leading to bank failures. Visco was nominated

for a second mandate in October 2017 by the former centre-left government,

pushing the populist coalition to use its power of appointment of other members

to raise pressure on the BOI. Both co-governing parties also want the Bank of

Italy to advocate more explicitly for Italian interests within the ECB and be

accountable for its actions.

--MNI London Bureau; +44 203 865 3829; email: jason.webb@marketnews.com

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