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UPDATE 1-ECB's Visco says efficient public administration more important than state lender

(Adds background, detail)

MILAN, Sept 16 (Reuters) - European Central Bank governing council member Ignazio Visco said on Wednesday Italy’s economy would gain more from reforms of its public administration than from the creation of a large public lender.

Speaking at a meeting of the Italian Banking Association, Visco, the governor of the Bank of Italy, noted that public sector management in the banking sector had often been marked by “serious inefficiencies in the allocation of resources.”

“It should not be forgotten that rather than support from a big public bank, the Italian economy would benefit more from an efficient public administration, adequate infrastructure, investment in innovation and knowledge,” he said.

The comments followed calls from members of the ruling 5-Star Movement and other parties for state controlled Monte dei Paschi di Siena to combine its assets with others to create a major new banking group.

The Italian Treasury, which was forced to rescue Monte dei Paschi in 2017, is looking to sell the bank by the end of the year, people familiar with the matter have told Reuters.

Others, including Carla Ruocco, a 5-Star Movement member who heads a parliamentary inquiry into banks, have urged the government not to sell Monte dei Paschi, currently worth just 1.6 billion euros ($1.9 billion).

Ruocco told business daily il Sole 24 Ore that one option could see MPS combined with another bank such as Banca Popolare di Bari to create a large bank for Italy’s struggling south.

Visco said Italy faced a fall in its economic output this year of a little under 10% before a very gradual recovery but said there would be little certainty until an effective response was found to the COVID-19 emergency.

He said Italian banks had shown greater capacity to respond to economic shocks but special interventions may still be needed with smaller banks requiring particular attention.

He said public support had been needed for some smaller banks and that “it cannot be ruled out that it may be again in the near future.” ($1 = 0.8430 euros) (Reporting by James Mackenzie, editing by Giselda Vagnoni and Timothy Heritage)

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