Bank ‘bail-ins’ and the new international bail-in regime that impose losses on bank investors, bondholders and even depositors may undermine the confidence of small savers in the banking system, a senior Bank of Italy official warned on Wednesday.

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“The bail-in can exacerbate – rather than alleviate – the risks of systemic instability caused by the crisis of individual banks,” Carmelo Barbagallo, head of supervision at the central bank, astutely noted during a hearing before the Chamber of Deputies in Italy according to Reuters:

“It can undermine confidence, which is the essence of banking; transfer the costs of the crisis from taxpayers at large to a smaller category of people no less worthy of protection – small investors, pensioners – who directly or indirectly invested in bank liabilities” said Barbagallo.

The comments are notable as they are the first time that a central bank official in the EU, and indeed, internationally has voiced concerns about the coming bail-in regime and the impacts on ordinary citizens – small businesses, investors, savers and pensioners.

Central bank supervisor, Barbagallo is an interesting character in that he does not appear to be your typical central banker – most of whom today seem to be career bankers with Goldman Sachs and other Wall Street or City of London bankers. Indeed, his background is as a worker who rose through the ranks to become a senior trade union official.

In that capacity, he has been courageous and unafraid to take on corrupt vested interests including the mafia in Sicily. He has denounced crime and intimidation by the Mafia which have resulted in attempts on his life according to Wikipedia.

We have long warned of the failure to understand the negative impact that bail-ins will wreak on western society and the real world consequences on middle class savers and investors and even more importantly on the small to medium enterprise sector – the backbone of most economies internationally.

A tragic example of this was seen in Italy in recent days when a pensioner committed suicide after having his life savings wiped out in a bank bail-in.

A pensioner from near Rome, hanged himself after his €100,000 (£72,000; $110,000) investment in Banca Etruria bonds were wiped out in a bail-in. A suicide note was left by the pensioner criticising the bank.

According to the BBC:

Italian Prime Minister Matteo Renzi has defended his government’s rescue of four Italian banks – but voiced sadness over an elderly investor’s suicide. Mr Renzi said the €4 billion rescue last month had to be done otherwise thousands of jobs would have been lost. Abo