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Western EuropeJune 5 2005

Bank of Italy topples off its puppet-master’s pedestal

Takeover struggles for two Italian banks have laid bare the Bank of Italy’s powerful tinkering in the banking system as the country’s watchdog and the EU pull their mightier legal rank.
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Italy’s banking revolution, which has been under way for more than 15 years, has entered a new and radical phase. Liberalisation, allowing bank managements new freedoms, the Amato Law, turning public-sector banks into joint stock companies, and the encouragement of privatisation brought sweeping changes to Italy’s fossilised banking system during the 1990s.

Who now remembers the tight regulation and the eagerly awaited branch plans, issued once every so often by the Bank of Italy, that authorised banks to open new branches? And who recalls those complex and secretive negotiations between the bigwigs of the governing parties to decide how the spoils of boardroom seats in Italy’s largest banks should be shared among their acolytes?

What has happened in the opening months of 2005 promises a similarly epochal transformation. Thanks go to two foreign banks, albeit with some help from the EU, which has watched Italy closely, and from Italy’s own stock market watchdog, Consob, which has discovered that it can bite as well as bark. The takeover struggles for Banca Antonveneta, involving Dutch bank ABN AMRO, and Banca Nazionale del Lavoro (BNL), involving Spain’s Banco Bilbao Vizcaya Argentaria (BBVA), are behind this sudden lurch forward for Italy’s banking system that has dislodged one illustrious institution, the Bank of Italy, from its pedestal.

With the arrival of the euro, Italy’s central bank lost its role in the areas of monetary and exchange rate policy. It has tried, however, to continue as arbiter and puppet-master in the banking system, encouraging mergers and acquisitions through its good offices and powers of moral suasion. Now, with the joint forces of Consob and the EU laying down the law, the Bank of Italy’s position is severely weakened.

The attempts by ABN AMRO and BBVA to strengthen their positions in Italy and their readiness to confront the central bank have highlighted the fact that a European market is beginning to mean just that. The takeover bids for Banca Antonveneta and BNL signal that Italy’s banking system is open to sound European banks that wish to expand there.

Provided the requirements of solidity and prudential management are satisfied, market forces must be allowed to decide how the Italian banking system will develop, not the Bank of Italy. And this brings more freedom to Italian banks to decide their own futures.

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Read more about:  Analysis & opinion , Western Europe , Italy