Draghi informed of Monte Paschi doubts but not at fault: source

Mon Feb 4, 2013 11:28am EST
 

By Gavin Jones

ROME (Reuters) - Mario Draghi was informed of doubts raised by Bank of Italy inspectors about the Monte dei Paschi bank but had little control over what has been widely criticized as ineffective oversight of the scandal-hit lender, a senior BoI source told Reuters.

The roots of the corruption and derivatives scandal at Monte dei Paschi all stem back to when Draghi, now president of the European Central Bank, was chief of Italy's central bank from 2006 to 2011.

The Bank of Italy (BoI) says it did everything in its powers to oversee Monte Paschi, including forcing it to raise new capital and applying behind the scenes pressure to force out its executives, who left last year.

Last month, the BoI approved 3.9 billion euros ($5.3 billion) of state loans needed by the ailing Siena bank to shore up its capital.

But the BoI, under Draghi's leadership, is under fire for not acting faster to sanction those managers and make its doubts public even though its inspectors had spotted the derivatives contracts at the centre of the scandal back in mid-2010.

The criticism has come from Monte Paschi shareholders, savers and politicians fired up by the campaign for a national election this month, but also from some banking and regulation experts.

However, the senior BoI source stressed that the decision on launching a sanctions procedure, involving publicly blaming and fining bank officials, does not depend on the BoI governor and its five member executive board, but on the bank's inspectors and then a series of lower committees.

"The inspectors are the only people responsible for initiating a sanctions procedure so if they don't find anything in the course of their inspection then it's not possible for the top management to start the process," said the source, who asked not to be named.   Continued...

 
The main entrance to Monte Dei Paschi bank headquarters is pictured in Siena January 25, 2013. REUTERS/Stefano Rellandini