VATICAN CITY (REUTERS) - Pope Francis on Wednesday set up a special commission of inquiry into the Vatican bank, his boldest move yet to get to grips with an institution that has embarrassed the Church for decades.

The high-powered, five-member panel, which includes four prelates and a woman Harvard law professor, will report directly to him, bypassing the Vatican bureaucracy that itself has sometimes been tainted by allegations of scandal and corruption.

The Institute for Works of Religion (IOR), as the bank is formally known, has long been tarnished by accusations that it has failed to meet international transparency standards intended to combat money laundering and tax evasion.

The Vatican said the commission, which Pope Francis set up with a personal decree known as a "chirografo", would enable him "to know better the juridical position and the activities of the Institute to allow an improved harmonisation with the mission of the universal Church".

It said the commission would have full powers to obtain all documentation and data necessary and supersede usual rules that oblige officials to respect the secrecy of their office.

The bank will continue to be run by his current administrators and be overseen by existing regulators while the commission carries out its task.

Vatican spokesman Father Federico Lombardi said the bank was not being put under "special administration" but that the commission would have ample powers to do its job.

The decree signed by the pope ordered the commission to give its conclusions and all supporting documents directly to him soon after it finishes it work.

Vatican sources have said in the past the pope could decide to radically restructure the bank or even close it. At meetings before the conclave that elected Pope Francis, a number of cardinals questioned whether the Vatican needed a bank at all.

Pope Francis has laid great emphasis on removing an image of privilege from Church operations and IOR's new president Ernst von Freyberg, a German, has begun a review of all its accounts and activities.

The commission is made up of an Italian cardinal, a French cardinal, a Spanish bishop, an American monsignor and Dr Mary Ann Glendon, a Harvard professor who is president of the Vatican's Pontifical Academy of Social Sciences and a former US ambassador to the Vatican.

The document setting up the commission says all bank officials and employees as well as staff in other Vatican departments had to cooperate with the commission.

The European anti-money laundering committee, Moneyval, said in a July report that the IOR still had to enact reforms in order to meet international standards against money laundering.

The bank is due to send Moneyval a progress report by the end of the year.

Mr Von Freyberg, 54, a German lawyer, told Reuters in an interview this month he was committed to total transparency and has started a review of the IOR's some 19,000 accounts, mostly held by Vatican employees and departments, orders of priests and nuns, and charities.

The bank has assets of US$7.1 billion (S$9.1 billion) under management and profits of 86.6 million euros (S$145 million), used to support Catholic activities around the world. It does not lend money.

Last year, the Vatican detected six possible attempts to use the Holy See to launder money. At least seven have been detected so far this year.

The bank is trying to clean up its image after a history of scandals, most notably in 1982 when it was enmeshed in the bankruptcy of Italy's Banco Ambrosiano, whose chairman Roberto Calvi was found hanging from London's Blackfriars Bridge.

In 2010, Rome magistrates investigating money laundering in 2010 froze 23 million euros held by the IOR in an Italian bank. The IOR said it was transferring its own funds between accounts in Italy and Germany. The money was released in June 2011 but the investigation continues.