MNI SOURCES: New Drive To Boost Gov't Power Over Bank Of Italy

By Silvia Marchetti

     ROME(MNI) - Italy's parliament is expected to revive plans to strengthen

government powers over the Bank of Italy after the recent rescue of a regional

lender renewed criticism of the central bank's performance as a financial system

supervisor, party sources told MNI.

     Banca Bari's E900 million emergency government bailout in December has

prompted the Five-Star Movement, which shares Italy's coalition with the

centre-left Democratic Party, to try again with legislation to allow the

government to appoint members of the Bank of Italy's governing board and to make

the institution more accountable to parliament and the government, the sources

said.

     Such an initiative had been promoted by Five-Star last year, but was

dropped after the populist movement fell out with its former coalition partners

in the far-right League in August.

     This time round Five-Star may muster enough votes to pass the bill, with

support from the small Italia Viva party led by former prime minister Matteo

Renzi, the sources said, noting that the Democrats may not back it.

     The reform bill would be sent to parliament once a committee to be

established to examine recent bank failures, whose presidency is expected to go

to Five-Star, has agreed on proposals to reform bank supervision, said sources.

One option could be to spin off the Bank of Italy's supervisory arm and make it

more accountable to parliament, said one of the sources, with ties to Renzi's

party.

     --FINANCIAL CRIMES

     Currently, governing board members are designated by the bank's governor

together with the board of directors, before approval by the Council of

Ministers and Italy's president. Under the proposal, the government's power to

appoint new governing board members would be subject only to approval by

parliament.

     "The independence of the central bank doesn't mean it is above the law,"

said the Five-Stars source.

     Renzi has previously signalled support for an overhaul of the central bank.

He opposed the renewal of Governor Ignazio Visco's mandate in 2018, clashing

with then-premier Paolo Gentiloni before abandoning the Democrats and forming a

new party of his own.

     Another key priority could be to revisit the existing set of financial

crimes and weigh potential changes to the penal code, sources said.

     "There are certain behaviours, customs and practices within the financial

sectors that are crimes but are not coded as such", said the Five-Stars source.

     A government source, from the Democrats, said the reform proposal was too

"radical" and would equate to an attack on the central bank's independence,

sending out a negative message at a eurozone level.

     Fears for the Bank of Italy's independence are also shared within the

institution itself, according to people familiar with the thinking of officials

at the Bank.

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

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