European bank shares dropped significantly in August after a surprise announcement from the Italian government for a new tax.Stefano Montesi – Corbis | Corbis News | Getty ImagesItaly’s shock tax on banks continues to prove controversial, even as the government insists it can improve it.Europe’s main bank stock index fell almost 3% on Aug. 8, after the Italian government announced plans to impose a 40% windfall tax on banks’ profits. The move caught traders off guard and sent shockwaves throughout the continent.The market reaction and wide-spread backlash pushed Rome to tone down the plans within 24 hours.Nearly a month later, the government is still studying how to make the measure work — but analysts and policymakers remain criticial.”It’s a very stupid law,” Carlo Calenda, national secretary of the Azione political party, told CNBC over the weekend.Calenda, Italy’s former deputy minister of economic development, warned the policy could put off international investors.”It’s something that all the international investors will look at saying: ‘Wow, this is very dangerous. I don’t want to make an investment here in Italy, long-term investments, knowing that the government can jump in and say okay, I’m gonna take part of your profit’,” he told CNBC’s Steve Sedgwick at the European House Ambrosetti Forum.Brothers of Italy, the leading party in the ruling coalition government, however, is of the opinion that lenders have not passed through higher rates to savers.The latest set of bank results in Europe show that lenders across the region are enjoying higher levels of profitability as interest rates keep rising.Italy’s Economy Minister Giancarlo Giorgetti said at Ambrosetti that the bank tax “can certainly be improved upon…but I do not accept that it is considered an unfair tax,” according to Reuters.Antonio Tajani, the country’s foreign minister and leader of the centre-right Forza Italia party, said the government is stable and the bank tax is not creating tensions.He insisted it is “correct to ask banks for help” but stressed that it is important to make a distinction between large and small lenders. “We need to talk with the banks to see if it is possible to write better the text [of the law],” he told CNBC’s Sedgwick.One of Italy’s biggest banks is not impressed, however.”This is not the good time to subtract lending capacity,” Intesa Sanpaolo Chairman Gian Maria Gros-Pietro told CNBC. “We think the communication has not been good,” he added, saying the measure should be a one off.