For more than three decades Giovanni Castaldi and Claudio Clemente worked as faceless bureaucrats at Italy's central bank.

Now the civil servants have emerged as public heroes in a banking scandal that has tainted the central bank governor and, for many, Italy's reputation.

Wire taps that uncovered murky dealings in a bank takeover fight revealed that the two men stood firm against the powers-that-be including the central bank's governor, Antonio Fazio.

They wrote an internal report that highlighted irregularities in Pop Italiana's bid for Antonveneta, to the ire of Fazio, whom critics have accused of favouring the Italian bank over its Dutch rival, ABN Amro.

"Signing the report was a brave decision," said Luigi Leone, secretary general of the Bank of Italy's union.

"For the first time in the history of the central bank, someone dared to challenge a system that had come to resemble an absolute monarchy." With the help of outside consultants, the central bank eventually cleared the takeover offer from the cooperative bank.

The wire taps, ordered by authorities investigating suspected financial crimes in the fight for Antonveneta, showed Fazio's eagerness to clear Pop Italiana's takeover of Antonveneta, also coveted by ABN Amro.

Although the Bank of Italy overrode the bureaucrats' recommendation, their report has now come back to haunt Fazio after it fell into the hands of investigating magistrates.

The Bank of Italy has defended its actions. In their July report on Pop Italiana's takeover plan, Castaldi and Clemente questioned financial transactions they said were designed to prop up the bank's capital ratios.

Despite pressure from Chief Inspector Francesco Frasca, one of Fazio's closest aides, they refused to modify their negative recommendation. "Can you do anything about this issue of Popolare di Lodi [Pop Italiana's former name]?," Frasca asked Castaldi in a tapped phone call.

"Francesco, the document has been signed, and it is definitive," Castaldi said. "It's a document that will go to the magistrates. One must take responsibility for what one signs." Fearing their report could be changed or lost, the two officials hid it in a safe and ducked meetings with Fazio's close aides by pretending to be picking up a car from the repair shop, magistrates' documents reveal.

Castaldi and Clemente were not available for comment. Those who know them well describe them as rigorous and attached to the institution they both joined in 1973.

Clemente is an expert on company accounting, while Castaldi is in charge of supervision for financial institutions at the central bank and helped draft Italy's code for company law.

"Faced with Castaldi's refusal to adjust the report, the central bank turned to three well-known lawyers, who added to a previous positive report by company law professor Fabio Merusi.

Frasca, who is under investigation in a Rome probe into the Antonveneta affair, called the two bureaucrats' work a stab in the back. "Castaldi has refused to change it," Frasca was taped as saying. "It had never happened before at the bank . . . The governor was very unsettled by this."

The modified report eventually gave a positive review of Pop Italiana's bid, allowing Fazio to give a green light to the the cooperative bank's bid in mid-July.

But what looked like a clear victory for Pop Italiana over ABN Amro turned into a judicial nightmare for the Italian bank when magistrates last week seized its stake in Antonveneta, and a judge barred the bank's chief executive from his role.

Meanwhile, pressure from politicians and the media has intensified on Fazio to resign.

"I have followed my conscience. I've done my duty. The conditions for a green light were not there," Castaldi was quoted by the Corriere della Sera newspaper as saying. - (Reuters)