Bail-in rules may undermine confidence in banking - Bank of Italy official

ROME, Dec 9 (Reuters) - So called ‘bail-in’ rules that impose losses on bank investors, bondholders and even current account holders if a lender needs to be rescued can undermine the confidence of small savers in the banking system, a Bank of Italy official said on Wednesday.

“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, said during a hearing before the Chamber of Deputies.

“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.”

Reporting by Stefano Bernabei, writing by Agnieszka Flak