The crescendo is growing louder to deny Italy’s current central bank Governor, Ignazio Visco, a second six-year term to lead oversight of the country’s banks after his current session ends in November.
As reported by Dow Jones, there is increased political pressure in Italy not to reappoint Visco. Critics point to the central bank’s performance in managing the crisis that has afflicted the country’s banks in recent years.
The Italian government submits the name of its preferred candidate for the position, but Italian President, Sergio Mattarella, of the centre-left Democratic Party makes the final decision and consults with the leadership of the central bank.
The government has not said whether it will propose Visco. The next Italian general election is due no later than May 2018 and opposition to Visco among political parties is growing as critics become more vocal.
A figure required to guarantee “fresh trust”
Criticism comes from populist parties like the anti-establishment, Five Star Movement, which say that failure to manage the banking crisis in the country has led to multi-billion euro government bailouts and a loss of confidence in banks amongst investors and the public.
In September, Adusbef, a consumer group for financial services customers along with lawmakers from Five Star Movement launched a petition to stop Visco’s reappointment. Elio Lannutti, the honorary president of Adusbef was quoted in the FT saying: “In six years, he has only made disasters. We cannot allow the principle that those who make mistakes don’t pay for them, and actually get rewarded.”
Fuelling doubts, the ruling centre-left Democratic Party, presented a parliamentary motion on Tuesday lambasting the bank’s performance under Visco’s leadership and calling for the nomination of “the most suitable figure to guarantee fresh trust” in the central bank.
The motion outlined that “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.”
Sour loans grow
Italy’s banking crisis, which straddled Visco’s term, highlighted a number of problems including: lax lending practices, political interference, excessive costs and poor profitability. Banks’ sour loans grew by 80% during his tenure.
The ECB took over supervision of the eurozone’s largest banks during his term. Back in the autumn of 2014, when the ECB conducted health checks before handover, Italian banks were the most troubled. Nine of the 25 eurozone banks that flunked stress tests were Italian, exposing that banks were nearly €10 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 nationalised earlier this year. Banca Popolare di Vicenza, which was was declared insolvent in June and had been overseen by the Bank of Italy, was fined €11.2m in September by the ECB for reporting breaches.
ECB proposal to tackle bad loan burden
The central bank released a statement blaming banks’ bad loan crisis on Italy’s economic downturn, the worst since the war, adding that its action prevented even more damage to the banks and deposit holders. It also said that the problems at some banks were due to fraud and criminal activity.
The growing furore over Visco’s reappointment also comes just as both the Italian government and central bank takes issue with the European Central Bank’s proposal to tackle the nearly €1 trillion ($1.177 trillion) of non-performing loans sitting on the balance sheets of eurozone lenders.
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.
Italian lenders account for about a third of that total, a burden that explains part of the chronic underperformance of Italy’s economy. Visco, who also sits on the ECB’s governing board, has been a leading voice against Europe’s bail-in rules.