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Bank of Italy’s Role Isn’t to Act as ‘Police’ for Paschi

Bank of Italy Governor Ignazio Visco
Bank of Italy Governor Ignazio Visco said, “We will give our advice, which is required, but there is no problem in terms of the standing of the bank.” Photographer: Simon Dawson/Bloomberg

The Bank of Italy’s role isn’t to “police” lender Banca Monte dei Paschi di Siena SpA and the central bank wasn’t informed of newly emerged transactions producing losses, said Governor Ignazio Visco.

The central bank “is a supervisor, not the police of the banks,” Visco said today in an interview with Bloomberg Television’s Francine Lacqua in Davos, Switzerland.

The central bank will review Paschi’s books after the company disclosed this week it may face more than 700 million euros ($941 million) of losses related to structured finance transactions hidden from regulators.

The Siena, Italy-based bank’s difficult liquidity situation, which is also due to “risky” deals, has been known for a long time, Visco said. New derivatives transactions linked to earlier deals have emerged and the central bank wasn’t informed of losses connected to them, Visco said.

Monte Paschi shareholders are today voting on a capital increase to pave the way for emergency government loans needed to boost capital. The stability of the bank is not in question and Monte Paschi “needs money because it has to meet certain standards of capital,” Visco said.

Once the bank’s board makes a formal request “we will intervene, evaluating the sustainability,” Visco said. “We will give our advice, which is required, but there is no problem in terms of the standing of the bank.”

The Bank of Italy may approve the aid as soon as tomorrow, financial newspaper MF reported today, without citing anyone.

The central bank and caretaker Prime Minister Mario Monti have come under pressure amid a political campaign for Feb. 24-25 national elections for possible failures linked to Monte Paschi. The transactions are now being reviewed by the central bank’s oversight division as well as judicial authorities, the Bank of Italy said Jan. 23.

Former Finance Minister Giulio Tremonti said today in an interview on SkyTG24 that normally it’s up to the Bank of Italy to inform prosecutors and not the other way around. “I think everything was very well known in certain circles,” he said.

Visco also said risks in the euro area have come down “significantly” because of the European Central Bank’s bond-buying plan, improvements in economic governance at European level and countries’ efforts on structural and budgetary reforms.

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