Prosecutors have notified the embattled governor of the Bank of Italy that he is under investigation for his role in a takeover battle between two banks, and that they plan to question him, his lawyer said yesterday.

Italy is today said to be “paralysed” after the economy minister resigned amid a standoff with the Bank of Italy chief.

ITALY'S Finance Minister Domenico Siniscalco sensationally resigned yesterday after he failed to persuade Bank of Italy Governor Antonio Fazio to quit.

Italian Premier Silvio Berlusconi’s Cabinet yesterday approved a reform of Italy’s central bank that includes a seven-year fixed term for its governor - attempting to restore the bank’s credibility after weeks of attacks over its handling of two recent bank takeover cases.