The Bank of Italy is trying to show its regulatory muscle after being criticized for its handling of the MPS scandal.
Bank Governor Ignazio Visco formally asked the Government and the Parliament for the power to remove bank managers.
Mr. Visco added that banks in the red are not supposed to grant bonuses or prizes to their managers. He expects banks to stick to this rule spontaneously; otherwise, new rules will be enacted and enforced.
Despite Mr. Visco’s apparently good intentions, some will still wonder whether the Bank of Italy is the right institution for the job. In 2005, Bank Governor Antonio Fazio was compelled to resign after allegedly meddling in the takeover of Banca Antonveneta by Banca Popolare di Lodi.
After that episode, the Italian Parliament cut the Bank Governor’s term to six years. Previously, the Governor was appointed for life.
The new rules aroused some fear about the Bank independence, however. In 2011, there was a long standoff between the Bank Council and the Berlusconi Government when the latter tried to appoint a Governor without taking into account the Council wishes. Ultimately the Government gave way, appointing the Bank nominee.