a real crisis so that the authorities can break glass and do something else….like bailouts or nationalizations. Folkerts-Landau is explicit in making a case against bail-ins, which wipe out shareholders and next bondholders, working up from the most junior to the most senior. While that ordinarily sounds like a fine idea (after all, these are supposed to be sophisticated investors who signed up to provide risk capital), in Italy, as also happened on a large-scale basis in Spain, depositors were persuaded by bank employees to buy other instruments, in the Italian case bonds, and were falsely told they were just as safe as deposits. From the Financial Times in February:

Pressure on the central bank rose in November after the rescue of four small regional banks in central Italyhave been to a large degree a victim of the crisis itself, as opposed to pre-criss recklessness. They have seen non-performing loans rise as a result of the direct damage of the sharp contraction in the economy and the protracted malaise. They also managed to wrong-foot the post crisis era, failing to do enough to boost bank capital levels, either though state aid or forcing them to sell equity.

Italian premier Matteo Renzi, having failed early in the year to get a waiver so as to allow Italy to provide an estimated €40 billion to a good bank/bad bank scheme (the sort used successfully in the US savings & loan and in Sweden’s early 1990s banking crises), made a personal appeal to Merkel in the wake of the Brexit