Italy prepares law to oust isolated bank head

ROME - Italy's government is preparing to push through a measure to try to force out Bank of Italy Governor Antonio Fazio and draw to a close one of the worst financial scandals to hit the country in a decade.

The measure, proposed by Economy Minister Giulio Tremonti, would see the swift removal of the governor, who is being investigated for insider trading.

Fazio says he has done nothing wrong and shows no sign of being ready to resign, raising the prospect of a clash again this week between parliament and the central bank.

"We must do everything to close this before Christmas," Tremonti was quoted as saying in leading newspaper Corriere della Sera on Sunday.

Tremonti's proposal involves a reform of the Bank of Italy, which has been engulfed by scandal since the summer when police wiretaps revealed Fazio gave approval to a bank takeover bid by friend Gianpiero Fiorani against his staff's recommendation.

He wants a rapid passage through parliament because if the reform is not approved by the year end, it is likely to be stymied until after April general elections.

But speedy approval will prove difficult.

Fazio has withstood calls to resign since July when an investigation opened into allegations he favoured Popolare Italiana, then led by Fiorani as chief executive, in a bid battle against Dutch rival ABN AMRO.

Under the reform, the central bank governor's life mandate would be reduced to five years, parliament would nominate a new bank supervisory committee and Fazio would have a transition period of a few months in which to leave office.

Tremonti has informal support for the deal from European Central Bank board member Lorenzo Bini Smaghi, financial newspaper Il Sole 24 Ore reported on Sunday.

But to go ahead, he will require a formal nod from the Frankfurt institution, which has so far ruled out a swift change of governor, demanding a 5-year handover.

Tremonti is expected to seek formal approval on Monday from the ECB, which stepped up its rhetoric against Fazio on Friday after court documents revealed Fiorani gave him gifts of champagne, cashmere jumpers and jewels worth thousands of euros.

Mario Monti, a former EU Competition Commissioner who is tipped as a possible successor to Fazio, on Sunday added his criticism, describing Fazio's supervisory decisions as "bizarre".

Fiorani was questioned by magistrates for close to five hours on Saturday following his arrest last week for suspected embezzlement and market-rigging.

Prime Minister Silvio Berlusconi's cabinet will meet on the reform on Tuesday, which will be attached to a broader shake-up of Italy's corporate regulation first mooted in 2004 to shore up investor confidence after the massive Parmalat fraud.

The broader shake-up, known as the "Measures to Protect Investors" bill, includes shifting the Bank of Italy's control of banking mergers to the antitrust authority. The bill has been mired in parliament for two years due to coalition bickering.

The Bank of Italy's superior council - the only body that has the power to fire Fazio outright - also meets on Tuesday.

Magistrates are also probing Fazio's relations with insurer Unipol and approval for its disputed bid for BNL over Spain's Banco Bilbao Vizcaya Argentaria, Corriere della Sera reported.

Tremonti is expected to seek to push the reform through parliament's lower house on Thursday, if necessary via a confidence vote, taking advantage of the cohesion of the right-wing coalition and the opposition.

It would go to the Senate on Friday.

However, opposition leaders have threatened to withdraw their support if the government tries to attach measures extending a decriminalisation of false accounting.

- REUTERS