Rome - The Bank of Italy's ownership structure is coming under increasing criticism as the centre-right Italian government considers ways to reform financial market regulation in the wake of the Fazio affair.

Three prominent economists yesterday urged far-reaching changes at the central bank so that it would not be majority-owned by the private sector banks that it regulates. Their recommendations come ahead of a meeting ofagovernment financial committee tomorrow at which Antonio Fazio, the central bank governor, is expected to defend his actions in the foreign takeover bids for Italian banks.

The central bank governor became embroiled in controversy last month when phone-tap transcripts - revealing a close relationship between Mr Fazio and the head of Banca Popolare Italiana - were leaked to the Italian media. Critics claimed the transcripts showed Mr Fazio favouring BPI's bid for Italian lender Banca Antonveneta over that of ABN AMRO, the Dutch bank.

Italy's commercial banks became majority owners of the Bank of Italy after the privatisation of the banking sector in the 1990s.

Their ownership is in apparent conflict with Article Three of the Bank of Italy's statutes.

The ownership issue has arisen after a five-month battle for control of two Italian banks, Banca Antonveneta and Banca Nazionale del Lavoro. Opposition politicians and Luca Cordero di Montezemolo, the head of Confindustria, Italy's employers' association, have called for Mr Fazio's resignation. Mr Fazio denies any wrongdoing and is not under investigation.

The economists, who published their recommendation in Il Sole 24 Ore, Italy's business newspaper, were Alberto Alesina of Harvard University, Guido Tabellini of Milan's Bocconi University and Luigi Zingales of the University of Chicago.

They said the real lesson from the takeover battles was that reform at the Bank of Italy needed to be more far-reaching. "All regulatory authorities risk being captured and managed in the interests of those who are regulated. The risk is greater for an organism, such as the Bank of Italy, which today is owned by those it regulates - the banks."

They support an argument by Mario Monti, Italy's former European Union commissioner for competition and the internal market. He said the bank needed a change in the ownership structure, more collegial management, a fixed term of office for the governor and changes in the regulatory responsibilities of the bank, the stock market watchdog and the antitrust authority.