Troubling times at Bank of Italy

Italy’s populist government has its eye on the country’s financial regulators. Rome has suffered a long series of banking scandals, so it’s only fair to ask for more accountability. But the way the ruling League and Five Star Movement are proceeding should worry anybody who cares about the independence of these institutions.
The coalition has nominated Paolo Savona, European Affairs minister, as the new chairman of Consob, the financial market regulator. It’s hard to see how an appointee who comes directly from the government could be seen as independent. At the same time, Rome has blocked a decision on renewing the term of Luigi Federico Signorini, deputy director general at the Bank of Italy. That’s another disturbing intervention into what should be the decision of the country’s president.
It could be worse. Matteo Salvini, the League’s leader and deputy prime minister, had said previously that the leadership at the Bank of Italy and Consob “should be reduced to zero.” He then relented a little, but still said it would be up to the finance minister and the prime minister to decide who runs the Bank.
There’s nothing especially wrong with elected politicians having some say over the country’s top financial technocrats when these positions are up for renewal, as far as the law allows it. The independence of central bankers and other regulators is crucial, but not absolute. They must be accountable to voters, to prevent them abusing their powers.
And, in fairness, the Bank of Italy and Consob have presided over a major banking crisis, which forced the Italian government to step in and rescue a string of lenders such as Monte dei Paschi di Siena. The central bank insists it did nothing wrong, as the crisis was a byproduct of Italy’s long recession. But questions remain over whether regulators should have imposed tougher supervision, or done more to stop retail investors from taking unwarranted risks when purchasing bank shares or subordinated debt. There have been very few changes subsequently in the top management at the bank, which has also refused to open an internal inquiry to investigate whether anything went wrong.
The situation at the Bank of Italy is just as worrisome. Italy’s law says it is up to the Bank’s board of directors to propose candidates for the role of director general and deputy director general, such as Signorini. The Italian president makes the appointment, while the government is only meant to express an opinion – not bring the whole process to a halt if it displeases the populists. It’s hardly reassuring that the League and Five Star are, at the same time, making strange noises about seizing control of the Bank’s gold reserves.
The League and Five Star’s attacks on officials would be more credible if they had competent and truly independent candidates ready to replace them. So long as they insist on loyalists and bizarre policies, they’ll only damage their own reputations – and that of the country.
—Bloomberg

Ferdinando Giugliano writes columns and editorials on European economics for Bloomberg Opinio