May 16, 2021

Draghi Says Regulators Need More Power to Supervise Local Banks

FRANKFURT — Problems at the Italian bank Monte dei Paschi di Siena show that regulators need more power to fire incompetent managers or otherwise step in when banks get in trouble, the president of the European Central Bank said Thursday.

The remarks, by Mario Draghi, came as he defended himself against criticism that he shared the blame for losses at Monte dei Paschi, or M.P.S., a centuries-old Tuscan lender.

“The Bank of Italy has done everything it should,” said Mr. Draghi, referring to the Italian central bank, where he was governor before becoming president of the E.C.B. in late 2011.

Troubles at M.P.S. have shaken Italian politics and caused jitters around the euro zone, while raising questions about the actions of Mr. Draghi, who is otherwise seen as a savior because of his efforts to contain the euro crisis.

Questions about the Bank of Italy’s role in overseeing M.P.S. come as the E.C.B. is preparing to assume responsibility for supervising all banks in the euro zone. That shift of power to the E.C.B. is supposed to increase confidence in euro zone banks and prevent national regulators from treating their home institutions too gently.

M.P.S. said late Wednesday that its losses from three questionable transactions were €730 million, or $978 million. That was only slightly higher than an estimate in October that the losses totaled €720 million.

The bank has new management since the events in question, which occurred mostly in 2008 and after. In a conference call Thursday, the M.P.S. chief financial officer, Bernardo Mingrone, sought to put the problems behind the bank. “Those are the only three operations that we found to be troublesome in the way they were accounted for,” he said.

Problems at M.P.S., which was founded in 1472, have rippled far beyond the medieval city of Siena, whose local government is also the bank’s largest shareholder.

The former prime minister Silvio Berlusconi has seized on the scandal as an issue as he tries to make a political comeback before the Italian national elections this month.

Mr. Draghi noted that the Bank of Italy lacked powers to remove managers at M.P.S. or to pursue criminal wrongdoing. The Italian central bank referred evidence of criminal activity to prosecutors, he said.

“You should certainly discount much of what you hear and read as part of the regular noise that elections produce,” Mr. Draghi said.

The Bank of Italy has insisted that it subjected M.P.S. to intense scrutiny. Last week the central bank issued a detailed account of the numerous steps it had taken since 2008 to force M.P.S. to raise capital, pressure managers to leave and deal with risks stemming from its holdings of Italian bonds, which were declining in value.

Some managers withheld critical information about the questionable trades that came to light only recently, the Bank of Italy said.

Still, the case of M.P.S. has illustrated the limits of bank supervision in Europe and called into question whether the E.C.B. would be able to do a better job than national supervisors of keeping an eye on financial institutions.

“One of the things that this story shows is that having more powers would have helped,” Mr. Draghi said.

But he rejected suggestions that the case illustrates one of the risks of giving central banks supervisory authority for banks: that it can damage central bankers’ reputations and hurt their ability to carry out monetary policy.

The problems at M.P.S., which led to a €3.9 billion bailout by the Italian government, have also led to criminal inquiries.

Prosecutors in Siena on Wednesday heard testimony from Antonio Vigni, a former chief executive of Monte dei Paschi and one of several previous managers being investigated on a series of charges including false accounting and fraud. Giuseppe Mussari, the bank’s former president, was to testify this week.

The bank’s troubles stem in part from the €9 billion purchase of Antonveneta bank in 2008, just months after the Spanish bank Santander had bought it for €6.6 billion. The Siena magistrates are also looking into allegations of bribery related to that deal.

Investigations have branched out to other Italian cities, including Trani, in Apulia, where prosecutors are looking closely at complex financial transactions carried out by Monte dei Paschi and other Italian banks as well as the role of the regulatory bodies entrusted with monitoring those banks.

Fabrizio Viola, the bank’s chief executive, said during the conference call Thursday that retail banking was now M.P.S.’s primary purpose. “Our core business is the retail,” he said, “and we manage financial operations with the transparency needed for the bank and for the markets.”

Gaia Pianigiani from Rome. Elisabetta Povoledo contributed from Rome.

This article has been revised to reflect the following correction:

Correction: February 7, 2013

An earlier version of this article misstated the Italian region where Trani is situated. It is in Apulia, not Sicily.

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