The Bank of Italy. Super Mario flies in

Date: 07/01/06

A new governor may, with luck, mean a new start for a troubled institution

A SHORT Christmas break was all that the Italian government needed to pick Mario Draghi as governor of the Bank of Italy. He will take over from Antonio Fazio, who resigned on December 19th. Mr Fazio's departure brought to an inglorious end a scandal that erupted last summer, after telephone intercepts were published suggesting that he had leant unusually far in favour of a bid by Banca Popolare Italiana, a shaky domestic bank, for Banca Antonveneta, rather than a rival bid by a Dutch bank, ABN AMRO (which eventually won the day despite Mr Fazio's efforts).

Mr Draghi has spent four years as a vice-chairman at Goldman Sachs, based in London. Such top-level experience in international finance augurs well for his new job. His predecessor's downfall owed much to a parochial view of how best to manage the bank. Mr Draghi will breathe fresh air into the musty corridors that Mr Fazio walked.

One dossier that Mr Fazio left open is another controversial takeover, of Banca Nazionale del Lavoro (BNL) by Unipol, an insurer. This bid too is under investigation by magistrates, and is now having political ramifications (see main story). If the central bank's general manager, who fills in until Mr Draghi arrives on January 17th, manages to approve the deal, Mr Draghi may be relieved: Goldman Sachs advised BBVA, a Spanish bank, in its rival bid for BNL last year.

Besides shaking up Italy's banks, the most pressing task for the new governor will be to restore morale. Once the country's most respected institution, the Bank of Italy's standing was battered by last year's banking scandals. Fortunately, Mr Draghi has a record of boosting spirits. He was director-general of Italy's Treasury for over ten years. When he arrived in 1991, he found a bureaucratic backwater with demotivated staff who would rather be working at the Bank of Italy. But his staff soon cheered up.

Why? Partly, because political changes in the 1990s made the work of the Treasury more interesting. It was involved in new legislation for the financial-services industry; it led Italy's drive towards privatisation; and the pressing need to make the Italian economy fit to join the euro brought it new power. Mr Draghi hired bright, ambitious people, some of them from the Bank of Italy itself. Under his aegis, the Treasury even took control of some matters that the bank had previously handled, such as management of public debt and European Union policy.

As the Treasury's star has waxed, so the Bank of Italy's has waned. The euro's arrival may have deprived the central bank of its monetary-policy autonomy, but it now has a much greater responsibility for liberalising and opening up to competition Italy's banking sector. Mr Fazio encouraged some domestic bank mergers, but ducked the rest of that agenda. It will now be up to Mr Draghi to take it forward instead.

A new governor of the Bank of Italy may, with luck, mean a new start for the troubled institution.

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