Mr Fazio faces questioning by magistrates over accusations that he unfairly favored Banca Populare Italiana over Dutch competitor ABN Amro for control of Padua-based bank Banca Antonveneta.
The central bank governor oversees the Italian financial sector and is meant to be an impartial arbiter. As part of the European Union, Italy's banking sector is supposed to be fully open to foreign entrants. Yet for a number of years Mr Fazio has had the reputation of seeking to protect Italy's banks from outside interference. Indeed, the Bank of Italy has faced pressure from the EU to put an end to its longstanding policy of blocking foreign takeovers of Italian banks, yet its position with regard to such deals remains ambiguous.
The Bank of Italy's Superior Council, the only body that can fire Mr Fazio, last month expressed confidence in him, leaving the judiciary as possibly Mr Fazio biggest obstacle to remaining in office. Under increasing international pressure, Prime Minister Silvio Berlusconi has also said that Mr Fazio should step down, yet the central banker has resisted.
The Italian banking sector is of great interest to both European and American banks. Along with Germany, Italy is arguably one of the most tempting European markets to enter into because it is relatively inefficient and still highly fragmented. The result is an outdated banking market, where consumers pay high fees for basic services. Those banks who can gain a foothold in the Italian market stand to gain greatly as the industry develops.
The judiciary's move to place Mr Fazio under investigation could be the beginning of a new era for Italian banking. The investigation may be an indication that the Italian government is now looking to open up its under-developed banking sector. If the Italian banking authorities were ultimately to adopt a more open approach to foreign investment, it is highly likely that the sector would see a quick succession of new entrants trying to gain a presence in one of the last big untapped markets in western Europe.