Inside the Vatican Bank's €5.7bn fund and its push for ethical investing

Irish Examiner

14-06-2025

From offices just off St Peter's Square in the Vatican, Jean-Baptiste Douville de Franssu, a former executive at the money-management firm Invesco, and Gian Franco Mammì watch over €5.7bn at one of the world's most exclusive banks.
It's a pittance compared with the trillions shuffled around by the Goliaths in London or New York. But the stockpile of assets and portfolio investments is serving the higher purpose of putting a small dent in the financial strains that have squeezed the Catholic Church for years.
The Institute for Works of Religion, or the Vatican Bank as it's known, provides traditional banking services and oversees investments for institutions tied to the church. Last year, it continued to draw in new cash, increasing its assets under management to a 10-year high, and is seeking to build on the record by showing it can continue to beat its benchmarks even by sticking to investments in line with the ethics of the faith.
'Financial markets have no mercy,' de Franssu, the IOR's president, said in an interview. 'If IOR doesn't deliver what it is expected from IOR, we will be in serious trouble.'
The bank's profits rose about 7% to €32.8m in 2024, according to figures released this week. Those earnings, which are used to pay dividends to the church, won't make up for the hole left in the Vatican's budget due to declining worldwide donations, administrative costs, and retirement bills. But it indicates the bank is making some strides toward shedding the reputation for mismanagement and secrecy that resulted in several public scandals surrounding investment losses, criminal probes and clandestine love affairs. De Franssu and Mammì — a more than three-decade employee who has been director general since 2015 — said Pope Leo XIV has indicated that he intends to continue the process started by Pope Francis to clean up the institution that effectively serves as the family office for the world's largest faith.
De Franssu was brought in in 2014 after three decades of scandals, from the Banco Ambrosiano failure in the 1980s to the freezing of €23m by Italian prosecutors in 2010, which tarnished the IOR's image and prompted Pope Francis to make financial transparency a priority.
Pope Leo XIV spreads holy water as he celebrates a Mass for the Jubilee of New Religious Associations on Pentecost Day in St. Peter's Square at the Vatican, Sunday, June 8, 2025. (AP Photo/Andrew Medichini)
Since then, it has begun publishing annual reports and revamped its management structure, ceding more oversight to lay people like de Franssu. It also adopted regulations aimed at bringing the bank into compliance with international financial standards, which led to the closure of thousands of accounts.
The IOR has also hired from investment banks including Citigroup and Intesa Sanpaolo. Over the past three and five years, 10 of its 13 flagship investment funds outranked a majority of their peers, according to the report released Wednesday, and its executives are hopeful that the first American pope will encourage more US institutions affiliated with the church to shift their money to Rome.
'We have shown you can beat benchmarks with purely ethical investments,' Mammì said in the interview. 'If you want to speculate — if you want to reach that additional 2% in return — I suggest you go elsewhere.'
While the IOR is not part of the Holy See's core annual budget, it is one of the key institutions in the financial management of the Vatican. It shares responsibility with the Administration of the Patrimony of the Apostolic See for the management of the Holy See's real estate and movable assets.
For 2024, the IOR board proposed a €13.8m dividend to the Commission of Cardinals, which uses it to pay for activities linked to religion and charity or as a contribution to the Holy See's coffers.
In the last few years, the dividends have been lower than they were before 2014, which Mammì said reflects the bank's efforts to better control its finances. While the Holy See as a whole hasn't published a full budget report since 2022, the last set of accounts for year 2024 included a deficit of about €70m, according to Italian daily Repubblica.
'Our job as managers is to invest, make a profit, hand out a dividend,' Mammì said. 'It is up to the cardinals to decide how to re-direct the money.'
- Bloomberg
Suspicious financial activity down
Reports of suspicious financial activity in the Vatican fell by a third in 2024, the Vatican Bank's internal watchdog report said in April, though 79 reports were still made and two bank accounts holding a combined €2.12m were frozen.
A view of St. Peter's Square during a Mass celebrated by Pope Leo XIV for the Jubilee of New Religious Associations on Pentecost Day at the Vatican, Sunday, June 8, 2025. (AP Photo/Andrew Medichini)
The decrease in suspicious activity reports was a sign that the Vatican "has maintained a high standard in its action of preventing and countering money laundering during 2024", Carmelo Barbagallo, the Vatican's Financial Supervision and Information Authority president, said in a new annual report.
Eleven of the 79 reported cases were referred to Vatican authorities for possible prosecution, the report said, adding that so far there had been no indictments. The Vatican's Financial Supervision and Information Authority Beyond the two frozen accounts, three transactions totalling €1.06m were also suspended, the report said.
The Vatican Bank, known formally as the Institute for the Works of Religion (IOR), was established in 1942 by Pope Pius XII and is used by Vatican agencies, church organisations, bishops and religious orders around the world.
It is a privately held institution located inside Vatican City run by a professional bank CEO who reports directly to a committee of cardinals, and ultimately to the Pope. It offers currency exchange services and interest-bearing accounts and has an investment portfolio. It has no branches outside Vatican City and it operates as an offshore institution outside EU rules.
There are no shareholders and no policy-making functions.
A supervisory council of lay experts was established in 1989 in a reorganisation of the bank, following an Italian banking scandal.
In 2011, the Vatican enacted laws to bring it in line with international standards on financial transparency in the biggest action ever taken by the Holy See to meet demands for more financial openness. It established an internal watchdog, known as the Financial Information Authority (FIA), to check compliance with international financial law.
The European financial watchdog Moneyval last issued a report about the Vatican's financial supervision in May 2024, which said the Vatican had improved its international banking and financial compliance measures.
Pope Francis also changed Vatican law so that bishops and cardinals accused of financial mishandling would be judged by a lay court that hears criminal cases and not by a panel of prelates.
The Vatican has since prosecuted and convicted a senior cleric, Cardinal Angelo Becciu, for misappropriation of funds in a case centred around the purchase of a high-end building in central London.
Becciu denies wrongdoing and remains free pending an appeal.
- Reuters