Italy's cabinet yesterday put off any decision on besieged central bank chief Antonio Fazio, but said that it would look at possible reforms of the banking sector which could trim his powers after the summer holidays.

The imperious Mr Fazio has faced calls from the centre-left opposition, trade unions and the media to resign over accusations of acting unfairly to protect Italy's banking sector from foreign predators.

Finance minister Domenico Siniscalco presented the cabinet with a report on the affair, which exploded after phone tap transcripts fuelled charges that Mr Fazio had favoured local bank Banca Popolare Italiana in its battle with Dutch ABN Amro for control of Banca Antonveneta.

At the same time as Mr Siniscalco warned the cabinet that Italy's reputation was "being dragged through the dirt", Mr Fazio met with Banca Popolare Italiana executives for the first time since the phone tap scandal came to light.

Il Giornale newspaper said yesterday that Bank of Italy inspectors had launched an investigation into Banca Popolare Italiana, accusing its executives of violating banking laws on capital adequacy in its efforts to take control of Antonveneta.

The fast-evolving banking scandal saw Banca Popolare Italiana's chief executive, Gianpero Fiorani, stripped of his functions by a judge on Tuesday in connection with possible financial crimes concerning stake-building in Antonveneta. "These are acts of financial banditry committed with the aid and, indeed, unscrupulous complicity on the part of relevant institutional bodies," Milan judge Clementina Forleo said in the court order, according to a judicial source who saw the order.

Judge Forleo also suspended two of Mr Fiorani's closest allies, financiers Stefano Ricucci and Emilio Gnutti, in a shock change of fortunes for the group, who had dominated front-pages with their daring bid for Antonveneta.

Despite the mounting calls for Mr Fazio to quit, he can count on numerous supporters in the government, and prime minister Silvio Berlusconi has shown no desire to try to force him out. - (Reuters)