Vittorio Grilli has delivered a robust defence of the Bank of Italy's supervision of the Tuscan bank at the centre of a bailout scandal, urging politicians in the heat of an election campaign to exercise "prudence and responsibility" in debating the state of the country's banking system.
Italy’s finance minister was called to testify before a special session of parliament in Rome on Tuesday to explain the government’s controversial decision to go ahead with €3.9 billion in loans to Monte Paschi di Siena, following revelations that its former management had hidden lossmaking derivatives contracts from supervisors.
Giulio Tremonti, former finance minister who had a stormy relationship with Mario Draghi – Bank of Italy boss before becoming European Central Bank chief in 2011 – attacked what he said was the then governor’s failure to exercise adequate vigilance despite effective inspections carried out by the central bank’s functionaries.
Mr Grilli insisted that the Bank of Italy’s supervision of Monte dei Paschi had been “continuous, thorough and appropriate” and had intensified through inspections that began under Mr Draghi in 2010 and continued under Ignazio Visco, his successor. Mr Grilli said Monte dei Paschi, Italy’s third-largest bank by assets, was solid despite its capital shortfall and losses linked to derivatives, which the bank’s new management, in place since last April, say could amount to €720 million.
The Italian Treasury also has regulatory responsibility for the foundation which is the major shareholder in the bank, and which over the past five years took on €1 billion in debt in order to retail control of the bank while it went through a series of capital raising actions as losses undermined its capital base.
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