Italy must rapidly implement, extend reforms: central bank

Sat Feb 18, 2012 8:07am EST
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By Silvia Aloisi and Gavin Jones

PARMA, Italy (Reuters) - Italy's central bank governor urged the government on Saturday to rapidly implement planned reforms and take further steps to support the euro zone's third-biggest economy, which he said would shrink by around 1.5 percent this year.

In a keynote speech in Parma, Bank of Italy chief Ignazio Visco said the country's banking system was solid but high costs and recession meant lenders' earnings prospects this year were "not favorable."

"Italian banks are sound, but they have been especially hard hit by the sovereign debt strains," he said.

Highlighting funding strains, he said that in 2011 banks' fundraising from customers and markets declined by 2.8 percent, while their reliance on borrowing from the European Central Bank increased.

European Central Bank funding to Italian banks stood at around 200 billion euros ($262.8 billion) in January, up from just over 40 billion last June.

Thanks to measures taken recently by the Bank of Italy, and allowing domestic banks to use banking loans as collateral for ECB funds, the total collateral available to the lenders will rise to nearly 450 billion euros, Visco said.

Italy has taken steps towards financial sustainability once deemed inconceivable, Visco said, but much remained to be done both domestically and at the European level.

At home, "the reforms decided must be rapidly completed and put into effect, in particular those to make the regulatory and administrative structure favorable rather than unfriendly to economic growth."   Continued...

Incoming Bank of Italy chief Ignazio Visco attends the "World Savings Day" meeting in Rome October 26, 2011. REUTERS/Stringer