ROME (Reuters) - Italy's central bank warned on Friday that excessively tough capital requirements for banks in the euro zone could worsen credit conditions and choke the prospects of economic recovery.
The comments by Bank of Italy Deputy Governor Fabio Panetta underscore mounting criticism in Italy of the hard line taken on capital by the European Central Bank (ECB) since it took over supervision for lenders in the single currency bloc in November.
Italy fared the worst in the ECB's health check of banks last year, with nine of its lenders failing the tests. Two of them - Monte dei Paschi di Siena (MI:BMPS) and Carige (MI:CRGI) - still have a capital shortfall to fill and are in the middle of negotiations with the ECB on how to do this.
Panetta, who is also a member of the supervisory board at the ECB's Single Supervisory Mechanism, said forcing banks to improve their capital positions could partly offset the growth-boosting effects of the ECB's bond-buying programme.
"Most recent macroprudential actions at national level have further tightened capital requirements, in response to national problems," Panetta said in a speech in Rome.
"Coupled with the ongoing micro-level tightening, these measures could ultimately aggravate the risks of persistently low nominal growth."
Panetta said at a time of weak credit and growth, macroprudential policy - the rules and regulations governing the banking system - needs to "lean decisively against the wind" to help the economy. "But in practice it is not doing so," he said.
Italy is struggling to emerge from its longest recession since World War Two although it is expected to return to growth this year, with recovery prospects helped by the ECB's bond-buying programme and the plunge in oil prices.
However, uncertainty over the fate of Monte dei Paschi has increased criticism of the ECB's role as banking supervisor.
Two sources close to the situation told Reuters last week the bank could raise the size of a planned 2.5 billion euro (2 billion pound) share issue by one billion to meet ECB demands.
The bank said last month the ECB had asked it to raise its core capital ratio to 14.3 percent, from 12.8 percent at the end of September.