* Bank of Italy chief to testify on Tuesday
* Minister cites failings in central bank oversight
* Says did not authorise Renzi ally to try to save bank (adds quotes, details, background, combines stories)
By Giuseppe Fonte
ROME, Dec 18 (Reuters) - The Bank of Italy could have done a better job supervising the banking sector while many lenders collapsed and thousands of savers lost their money, Economy Minister Pier Carlo Padoan said on Monday.
Padoan, who has no party affiliation, also embarrassed the ruling Democratic Party (PD) by saying he had not authorised attempts by Cabinet Undersecretary Maria Elena Boschi to save an ailing bank where her father worked.
Padoan told a parliamentary committee the government had reappointed Bank of Italy Governor Ignazio Visco for a second term in office, despite the oversight failings, in order to provide stability to financial markets.
“We wanted to give a signal of stability while acknowledging that in specific cases supervision could perhaps have been done better,” Padoan told a special commission set up to look into a string of bank collapses.
Visco, whose reappointment was opposed by the PD and its leader Matteo Renzi, will testify before the commission on Tuesday and is expected to face tough questions from political parties of all stripes.
The commission, which was set up in September, has become a focal point of political campaigning ahead of a national election expected to be held in March.
Opposition parties, led by the anti-establishment 5-Star Movement and the right-wing Northern League, have attacked the PD for the collapse of 10 banks in the last two years, while Renzi says the Bank of Italy should shoulder the blame.
Padoan cited the collapse of two local banks in north-eastern Italy, Veneto Banca and Banca Popolare di Vicenza, as cases in which the central bank’s supervision had been lacking.
The banks were eventually wound down at an immediate cost of almost 5 billion euros ($5.9 billion) for Italian taxpayers.
Visco has said the problems of Italy’s banks were caused by a steep double-dip recession between 2008 and 2013, which triggered a surge in bad loans.
While the PD is expected to pressure Visco to accept some blame for the banking crises, the opposition hopes that he will counter-attack by pointing the finger at government failings.
Italy’s economy is now accelerating and Padoan told the commission the worst was over for its banks, with soured loans amounting to some 287 billion euros, compared with a peak of 361 billion in 2015.
On Wednesday the commission will hear Federico Ghizzoni, the former head of UniCredit, one of Italy’s largest banks, in testimony which the opposition hopes will hurt former Prime Minister Renzi and Boschi, one of his closest allies.
The opposition has accused Boschi of having a conflict of interest when she took steps to try to save Banca Etruria, a bank based in her home town of Arezzo. She denies wrongdoing.
In a book published this year, the former director of newspaper Corriere della Sera said Boschi had asked Ghizzoni in 2015 to look into the possibility of buying Banca Etruria, which eventually had to be rescued by the state.
It has already emerged that Boschi held several meetings with bankers and regulators to try to save the lender. Padoan said on Monday he had not given her a green light to act.
“I didn’t authorise anyone and no-one asked me for authorisation,” he said. “The responsibility for the banking sector lies with the economy minister who normally discusses it with the prime minister.” ($1 = 0.8474 euros) (writing by Gavin Jones, editing by Angus MacSwan)