Analysis: Draghi's new powers under Monte Paschi spotlight

Thu Jan 31, 2013 8:47am EST
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By Gavin Jones

ROME (Reuters) - As European Central Bank head Mario Draghi prepares to become banking supervisor for the euro zone, he can ill afford the charge that under his leadership, Italy's central bank let scandal-hit Monte Paschi off the hook with woeful oversight.

The roots of the corruption and derivatives scandal at Monte dei Paschi de Siena (BMPS.MI: Quote), the world's oldest lender, all stem back to when Draghi was Bank of Italy governor between 2006 and 2011, and the central bank's defense of its record has only reinforced the perception it was lax, dilatory and secretive.

Despite being deeply concerned by Monte Paschi as long ago as 2009 and having specific and growing doubts about its operations and accounts, the BoI revealed that it did not summon the bank's management until late 2011 and took no sanctions until after the executives had stepped down last year.

Meanwhile, Monte Paschi's shareholders were kept in the dark about all the inspections and complaints that the BoI raised.

"The Bank of Italy could have done much more," said Alessandro Penati, professor of banking and finance at Milan's Cattolica university and one of Italy's leading regulation experts.

"They knew enough in 2010 to justify a much tougher line with the bank's management. They have the power to contest the bank's balance sheet and to get the management replaced, and that's what they should have done."

Prosecutors in the southern Italian city of Trani, who have previously taken on ratings agency Standard and Poor's, have opened an investigation against the Bank of Italy over accusations it failed in its regulatory duties.

Separately, a Rome court has summoned the BoI to a hearing on Saturday over its decision to authorize state loans for the ailing bank. Both cases were brought by consumer groups.   Continued...

European Central Bank (ECB) President Mario Draghi attends the annual meeting of the World Economic Forum (WEF) in Davos January 25, 2013. REUTERS/Pascal Lauener