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MNI SOURCES: Bank of Italy Governor Visco Likely Reconfirmed

MNI (London)
--Pre-election Period Raises Instability Risks, Govt Aims For Continuity
--Visco Current Term Expires End-October
--Alternative See BOI Insiders Rossi and Panetta As Contenders
By Silvia Marchetti
     ROME (MNI) - Bank of Italy governor Ignazio Visco is likely to be
reconfirmed for a second six-year term in a sign of continuity and to stave off
possible financial market instability ahead of next year's general elections,
Market News understands.
     Sources close to the government and to the Bank of Italy told Market News
that replacing Visco at such a delicate political moment, when the country is
gearing for the spring election, could be counterproductive and convey a message
of "instability" to markets and international investors.
     But it's not just a political matter. "This is also a very delicate
economic and financial phase", said a source. "The Italian economy is finally
heading towards a 1.5% growth this year and banks are starting to reduce the
burden of their non-performing loans after a triple-dip recession".
     Another top official noted that Visco is likely to be reconfirmed for a
second mandate, and if not, the next governor would most probably be a
high-ranking member within the bank's directorate, chosen from amongst the three
deputy governors and the senior deputy governor, currently right behind Visco in
the Bank hierarchy.
     "One thing is certain; it will be an internal solution rather than bringing
in an external figure like a high-level expert or professor," said the source.
     Visco's mandate expires on November 1 and the government must appoint his
successor, or reconfirm Visco, by October 31, which leaves little time for any
political manoeuvres.
     The decision on who will next head Italy's central bank is largely a
political one. The government has a direct, but not exclusive, say on the
matter, argued an official. The process of appointment does not involve any sort
of vote or election, but is purely made by joint designation from the prime
minister, Paolo Gentiloni, and Italy's head of state, Sergio Mattarella.
     According to Italian law, the prime minister indicates the name of one
single possible candidate and forwards it to the Bank of Italy's Board of
Directors for their opinion. Once the board has expressed their view, the
candidate's name is then sent to the head of state, who appoints the new
governor by presidential decree. 
     Any governor can run for only two consecutive 6-year terms.
     The government's probable decision to keep Visco at his place for another
term will take into account the fact that his departure may be seen negatively
in financial markets.
     Visco has been heavily criticized by many political parties and lobbies for
the way the central bank handled the rescue of several failing lenders this
year. He was even initially probed by authorities for his alleged lack of
supervision in one specific case. The probe against Visco was, however, later
dismissed in absence of elements to proceed against him, with all accusations
dropped.
     In early September, following further severe criticism and media attacks,
the government was forced to formally "renew" its total trust in Visco, through
a statement issued by PM Gentiloni's office.
     Keeping Visco at the head of the bank is the most likely decision due to
other pressing matters such as budgetary deadlines, said a source.
     The timing for finding a quick replacement would come at a difficult time
for Rome, as it seeks to push through the 2018 budget law, with crucial labour
tax cuts and growth-oriented measures, which must be approved and forwarded to
the European commission by October 15 for an initial green light.
     Last week the parliament's banking commission kicked-off an investigation
into the reasons behind the recent bank crises, and Visco may soon be questioned
as part of the inquiry.
     Substituting Visco could be seen as the government partially admitting that
the governor, at the very least, underestimated risks in the banking sector,
explained a Lower House deputy.
     The government also intends to adopt a strategy of continuity and market
reassurance, explained another government source. Gentiloni and Mattarella have
more than once expressed their support for the governor, as opposed to former
premier Matteo Renzi, and frontrunner at the upcoming elections, who had
previously criticised Visco's operational mode but would now be ready to take a
step back and accept a second mandate for the Governor.
     Were Visco however not to be reconfirmed, chances are high that he could be
replaced by one of the other two most prominent figures within the Bank of
Italy: Senior Deputy Governor Salvatore Rossi, previously head of supervision,
or Fabio Panetta, one of three current Deputy Governors, in charge of financial
stability and euro-system matters.
     In his capacity, Rossi might appear to be in pole position as replacement.
He stands in for Visco during the latter's absence or incapacity and has
authority over the bank's day-to-day administration. Rossi is also head of the
country's Insurance Supervisory Authority.
     "It has often the case that the senior deputy governor rises at the helm of
the bank, but it is not the rule," notes a source.
     Panetta however, younger than Rossi, has greater European exposure and that
may give him a winning edge. He's the alternate to Visco on the European Central
Bank's Governing Council, a member of the Supervisory Board of the Single
Supervisory Mechanism at the ECB, as well as being a member of the Board of
Directors of the Bank for International Settlements.
     Panetta is also member of the Committee on the Global Financial System and
in 2011 he became managing director with the task of coordinating the bank's
activities relating to the Euro-system and to financial stability.
--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com
[TOPICS: M$E$$$,M$I$$$,M$X$$$,MT$$$$,MX$$$$]
MNI London Bureau | +44 203-865-3812 | les.commons@marketnews.com
MNI London Bureau | +44 203-865-3812 | les.commons@marketnews.com

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