The White Financier; Italy's central banker survives in a lifetime post with rare powers due in part to his strong Catholic support.(Antonio Fazio)

Byline: Jacopo Barigazzi

Antonio Fazio has won. Whether Italy has is another question. When the scandal involving 14 billion euro in fictitious profits at Parmalat erupted in late 2003, Giulio Tremonti, then Italy's Finance minister, blamed Fazio. He claimed that as Italy's central banker, Fazio had failed to act on warnings that banks were financing a house of cards at Parmalat. Tremonti announced reforms to impose term limits on Fazio's lifetime post, remove its regulatory authority and create a superregulator like Britain's Financial Services Authority.

In the ensuing power struggle, Tremonti was forced to resign, and his reforms were gutted in Parliament last week. Reform would have brought Italy into line with the rest of Europe and the United States, where central bankers typically face term limits and do not have regulatory power. The result left the unmistakable impression that Italy is turning inward.

A uniquely Italian web of power helps explain how the financial system survived Parmalat and other recent scandals largely unreformed. Fazio has foes and friends on both sides of the aisle in Parliament: Prime Minister Silvio Berlusconi ended up backing the governor, but some of Fazio's main enemies are also in the ruling coalition. What most clearly unites Fazio's closest backers are their links to the re-emerging force that Italians call fianza bianca, or "white finance," after the color of the papal robes.

Its roots go back to the late 19th century, when Italian banks were all small, regional and Roman Catholic. In 1894 a modernizing government brought in Austrians and Germans to set up the first national bank, Banca Commerciale, to finance Italy's growing industrial sector. Other so-called secular national banks were founded by Italians who were also baptized, but did not publicly express Catholic beliefs. The Catholic bankers have been reasserting influence in recent years, gaining control over Banca Commerciale, and crossing a milestone when Fazio approved a string of acquisitions through which his ally Cesare Geronzi created a powerful new Rome bank, Capitalia, in 2002. "This occurred in a transparent way, and there ...