Calls Grow to Deny Italy's Central Bank Chief a Second Term
October 18 2017 - 8:22AM
Dow Jones News
By Giovanni Legorano and Deborah Ball
ROME--Political pressure in Italy is rising with calls to deny a
second mandate to central bank Governor Ignazio Visco when his term
ends this month, amid mounting criticism of the bank's performance
in managing the crisis that has afflicted the country's banks in
recent years.
The governor's six-year term expires at the end of this month
and, until recently, his reappointment appeared likely. The Italian
government submits the name of its preferred candidate for the
position, but Italian President Sergio Mattarella makes the final
decision and consults with the leadership of the central bank.
The Italian government hasn't yet said whether it will propose
Mr. Visco. A government spokesman didn't respond to a request for
comment.
In recent days, opposition among political parties to the
reappointment of Mr. Visco--coming just months ahead of national
elections in Italy--has risen.
The antiestablishment 5 Star Movement and other populist parties
have long been critical of the Bank of Italy's leadership in
managing a banking crisis that has cost taxpayers billions of euros
and required the government to bail out a number of crippled
lenders.
Those criticisms spread when the ruling center-left Democratic
Party presented a parliamentary motion Tuesday blasting the bank's
performance under Mr. Visco's leadership and calling for the
nomination of "the most suitable figure to guarantee fresh trust"
in the central bank.
"In recent years, doubts have emerged as to the efficacy of the
Bank of Italy's banking oversight, given the repeated and serious
situations of crisis and instability in the banking system that
could have been mitigated by more timely and incisive management,"
said the motion.
In a statement, the central bank blamed the lenders' woes on an
economic downturn in Italy that was the worst since the war, adding
that its action prevented even more damage to the banks and deposit
holders. It also noted that the problems at some banks were due to
fraud and criminal activity.
The firestorm over Mr. Visco's reappointment comes just as the
central bank and the Italian government take issue with a proposed
new plan by the European Central Bank to tackle the nearly EUR1
trillion ($1.177 trillion) of nonperforming loans sitting on the
balance sheets of eurozone lenders. Italian lenders account for
about a third of that total, a burden that explains part of the
chronic underperformance of Italy's economy. Mr. Visco, who also
sits on the ECB's governing board, has been a leading voice against
Europe's bail-in rules.
Mr. Visco's term coincided with a deep banking crisis that
exposed a host of problems, including lax lending practices,
political interference, excessive costs and poor profitability.
Banks' sour loans grew by 80% during Mr. Visco's tenure.
His term also straddled the period when the ECB took over
supervision of the eurozone's largest banks--a handover that at
times cast the Bank of Italy in poor light.
In a health check the ECB conducted of the banks just before the
handover in autumn 2014, Italian banks emerged as the most
troubled. Nine of the 25 eurozone banks that flunked the tests were
Italian, with the stress tests finding they were nearly EUR10
billion short on capital.
Banca Monte dei Paschi di Siena SpA emerged as the worst
performer by far. Its woes threatened in 2016 to spread to other
Italian lenders; it was nationalized earlier this year.
Over the past year, Italian banks have raised billions in fresh
capital and have begun to execute plans to shed tens of billions of
bad loans. However, it could take a decade for banks to reduce
their nonperforming loans to the European average, according to
Morgan Stanley. The Bank of Italy has said it believes the bad loan
problem is "serious but manageable."
The ECB has begun pressuring eurozone banks to tackle the
problem, recently proposing rules that would force banks to set
aside more money for the bad loans. The Italian government and the
central bank have been highly critical of the proposal, saying it
would force the banks into fire sales of bad loan portfolios, erode
their capital cushion and squash lending.
Write to Giovanni Legorano at giovanni.legorano@wsj.com and
Deborah Ball at deborah.ball@wsj.com
(END) Dow Jones Newswires
October 18, 2017 08:07 ET (12:07 GMT)
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