Boosting The Bank's Credit

Mario Draghi's first task as Bank of Italy's new governor was accomplished the moment his name was announced — the respected No. 2 man at Goldman Sachs instantly restored credibility to Italy's besmirched financial system. After a six-month drama of piled-up ethical questions and judicial inquiries, longtime central banker Antonio Fazio finally stepped down last month.

While several key private Italian bankers are being investigated in probes of two bank takeovers that Fazio green-lighted, Fazio denies any wrongdoing. (Last week, three more financial executives resigned, and the banker closest to Fazio, Gianpiero Fiorani, was interrogated in the Milan prison where he awaits trial on corruption charges. He has previously denied any wrongdoing.)

Draghi, 58, who arrives at the Bank of Italy from Goldman Sachs' London office, will have to do more than just image polishing. Stefano Caselli, professor of banking and finance at Milan's Bocconi University, expects the new governor to encourage bank consolidation across borders. "Draghi will be open to the entry of foreign banks in Italy, but will also look for Italian banks to acquire interests abroad. Italy needs both."

Thanks to a new law, Draghi will serve a once-renewable, six-year term; if he's going to overcome decades of banking insularity, he may need all of it.