E-encyclopedia of banking, stock exchange and finance

Selected letter: B

  • Back-end Ratio

    A ratio that indicates what portion of a person's monthly income goes toward paying debts. The total monthly debt includes expenses such as mortgage payments (made up of PITI), credit-card payments, child support and other loan payments. Lenders use this ratio in conjunction with the front-end ratio to approve mortgages.

    Back-End Ratio



    Also known as "debt-to-income ratio".

    For example, if your monthly income is $5,000 ($60,000/12) and your total monthly debt payments are $2,000, your back-end ratio is 0.40 or 40%. Generally, lenders like to see a back-end ratio that does not exceed 36%; however, there are lenders who make exceptions for ratios up to 50% if you have good credit. Some lenders consider only this ratio when approving mortgages, as opposed to using it in conjunction with the front-end ratio.

  • BACKWARDATION

    In energy markets, this term refers to a situation where spot commodity prices are higher then future prices. In the oil market, this situation might reflect the supply and demand condition. This situation happens when the demand is greater than the supply and this makes the spot price higher. Oil crises due to a supply reduction and disequilibria in the energy markets tend to drive the oil market in a backwardation situation. The contrary of Backwardation is Contango.
    Editor: Claudio DICEMBRINO
    © 2009 ASSONEBB

  • BAIL IN AND BANKING CRISIS' SOLUTION

    What is a bail-in?

    When the conditions for resolution are met, a bail-in enables the resolution authorities to write down the value of the shares and reduce some claims payable or convert them into shares to absorb the losses and recapitalize the bank, to restore capital adequacy and preserve market confidence.

    The shareholders and creditors cannot, under any circumstances, be required to suffer greater losses than they would incur under normal insolvency proceedings.

    The new European rules on crisis management (BRRD)

    The Bank Recovery and Resolution Directive introduces harmonized rules to prevent and manage crises at banks and investment firms throughout Europe. The BRRD still has to be transposed into Italian law but on 2 July Parliament approved the European delegation law enabling the Government to do so.

    The BRRD gives the resolution authorities (see below) the powers and tools to: i) plan crisis management; ii) intervene in time to prevent a full-blown crisis; and iii) handle the ‘resolution’ stage in the best possible way. Funds are to be created, out of contributions from financial intermediaries, to finance resolution measures.

    While a bank is still operating normally, the resolution authorities should prepare resolution plans detailing strategy and actions to undertake in the event of a crisis. The authorities can intervene, even at this stage, with very wide powers, to create the conditions for easy application of the resolution tools, i.e. to enhance the ‘resolvability’ of individual banks.

    The supervisory authorities will approve recovery plans, drawn up by the banks themselves, that specify the steps to be taken at the first signs of deterioration in the financial situation. The BRRD also gives the authorities ‘early intervention’ tools to supplement the traditional prudential measures, graduated according to the severity of the problem: the worst cases might require the removal of the entire management body and all senior management, and if that is not sufficient one or more temporary administrators may be appointed.

    Why were the new European rules enacted?

    The new rulebook will allow orderly crisis management, with tools that are more effective and using private sector resources, thus buffering the impact on the economy and saving taxpayers’ money.

    The financial crisis has shown that a good many EU countries had inadequate tools for managing banking crises, especially for intermediaries with complex organizational structures and a dense network of relations with other financial operators. To stop a crisis at one bank from spreading uncontrollably, significant public interventions were necessary, which did safeguard the financial system and the economy but also involved high costs for taxpayers and in some cases jeopardized public financial stability1. And it was very hard to coordinate the interventions of the national authorities to deal with the problems of intermediaries operating in more than one country.

    What is a bank resolution?

    A bank resolution is a process of restructuring managed by independent authorities … resolution authorities … that with the tools and powers now available under the BRRD aims to avoid interruption of essential services (for example, deposits and payments), restore the viability of the healthy part of the bank, and liquidate the remaining parts. The alternative to resolution is liquidation. In Italy, compulsory administrative liquidation under the Consolidated Law on Banking will remain as a special procedure for banks and other financial intermediaries, in lieu of the bankruptcy procedures applicable to ordinary firms.

    When is a bank subject to resolution?

    The resolution authorities can resolve a bank if all these conditions are met:

    • the bank is failing or is likely to fail when, for example, as a result of losses, it has entirely written off its capital or significantly reduced it);
    • the authorities are convinced that alternative, private measures (such as capital increases) or supervisory action cannot have effect quickly enough to keep the bank from failing;
    • the normal insolvency proceedings would not safeguard the stability of the system, protect depositors and customers and ensure the continuation of critical financial services, so that resolution is required in the public interest.

    What are the resolution tools?

    The resolution authorities can:

    • sell a part of the business to a private buyer;
    • transfer assets and liabilities temporarily to a ‘bridge bank’ established and managed by the authorities to continue performing critical functions, with a view to subsequent sale on the market;
    • transfer non-performing loans to a vehicle (‘bad bank’) that will manage their liquidation in a reasonable timeframe,
    • apply a ‘bail-in’, i.e. write down equity and other liabilities and convert them into shares to absorb the losses and recapitalize the existing bank or a new bank able to perform the critical functions.

    Public intervention is only envisaged in extraordinary circumstances to prevent serious repercussions on the financial system as a whole. Government intervention, such as temporary nationalization, requires in any case that the costs be borne by the bank’s shareholders and creditors through the application of a bail-in of at least 8 per cent of total liabilities.

    How does a bail-in work?

    The figure gives a simplified illustration of how a bail-in works:

    Initially, when a bank is operating normally (left), its liabilities consist of its capital, claims on it that are subject to bail-in (eligible liabilities) and others that are not (excluded liabilities), such as deposits protected by a guarantee scheme.

    When a bank is failing, as a result of losses, the value of its assets is written down and its capital is reduced to zero. In the final stage (resolution or establishment of a new bank), the authorities order a bail-in, reconstituting the capital base by converting a part of the eligible liabilities into shares.

    In this way the bail-in keeps the bank operating, providing critical financial services to the community. Since the financial resources to stabilize conditions come from the bank’s own shareholders and creditors, there is no cost to taxpayers.

    Which liabilities are excluded from a bail-in?

    All the following liabilities are excluded from the scope of application. They cannot be written down or converted into shares:

    • deposits protected under the deposit guarantee scheme, i.e. up to €100,000;
    • secured liabilities, including covered bonds and other guaranteed instruments;
    • liabilities resulting from the holding of customers’ goods or in virtue of a relationship of trust, for example the contents of safe deposit boxes or securities held in a special account;
    • interbank liabilities (except those within the same banking group) with an original maturity of less than 7 days;
    • liabilities deriving from participation in payment systems with a residual maturity of less than 7 days;
    • debts to employees, commercial payables and tax liabilities, if these are privileged under bankruptcy law.

    Liabilities that have not been expressly excluded can be included in a bail-in. But in exceptional circumstances, such as when the bail-in entails a risk for financial stability or jeopardizes critical functions, the authorities may, at their discretion, exclude other liabilities as well. These exclusions are subject to limits and conditions and must be approved by the European Commission. Losses that have not been absorbed by the creditors can be transferred, at the discretion of the authorities, to the resolution fund, which can intervene up to a ceiling of 5 per cent of total liabilities, provided that a minimum bail-in of 8 per cent of total liabilities has been applied.

    What do savers risk in a bail-in?

    Bail-ins follow a ranking whose logic envisages that those investing in the riskiest financial instruments will be the first to absorb any losses or have their claims converted into equity (see the figure). Only when all the resources in the highest-risk category have been deployed can the next category be involved.

    First of all, the interests of the bank’s owners … the shareholders … are sacrificed as the value of their shares is written off. Next, when reducing the value of the shares to zero does not fully cover the losses, action is taken vis-à-vis some classes of creditor, whose assets may be written down or converted into equity to recapitalize the bank.

    For example, the holders of bank bonds could find that these have been converted into equity and/or their claim is now devalued, but only if the resources of the shareholders and those holding subordinated debt securities (i.e. the riskiest assets) are insufficient to cover the losses and recapitalize the bank, and even then only if the authority has decided not to exercise its discretionary power to exclude this kind of credit in order to prevent contagion and safeguard financial stability.

    For bail-ins, creditors are ranked as follows: i) shareholders; ii) holders of other capital instruments; iii) other subordinated creditors; iv) unsecured creditors; v) individuals and small businesses for the part of their deposits above €100,000; vi) the deposit guarantee fund, which contributes to the bail-in in the place of guaranteed depositors.

    EU legislation takes the approach to bail-ins, whereby the measures must be applicable also to instruments issued prior to the enactment of the legislation and already in the possession of investors.

    Investors must accordingly pay close attention, when they sign on, to the risks attaching to certain kinds of investment. Retail customers who intend to buy bank securities should first be offered certificates of deposit covered by the guarantee scheme instead of bonds, which are subject to bail-in. At the same time, banks must reserve the instruments other than deposits, especially subordinated debt instruments, which come right after shares in absorbing losses, to more expert investors. Banks must provide timely information on all these aspects to their customers; the information must be provided, in great detail, at the time of placement of securities issues.

    What do depositors risk?

    Deposits up to €100,000, which are protected under the Deposit Guarantee Fund, are expressly excluded from bail-ins. This protection applies, for example, to current accounts, savings books, and certificates of deposit covered by the Fund; but it does not apply to other forms of investment, such as the bank’s bonds.

    The portion of households’ and small businesses’ deposits above €100,000 also get preferential treatment These deposits sustain a loss only if all the instruments with a lower insolvency ranking are insufficient to cover the losses and restore capital adequacy.

    Retail deposits above €100,000 can also be excluded from the bail-in on a discretionary basis, in order to prevent the risk of contagion and maintain financial stability, on condition that the bail-in has involved at least 8 per cent of total liabilities.

    As of when will the bail-in rules apply?

    In Italy bail-in rules will not become fully applicable until 2016; but the write-down or conversion of shares and subordinated debt, including capital instruments, applies already in 2015 if needed to avoid a failure.

    The Commission’s 2013 guidelines for application of the rules on State aid already require the involvement of shareholders and subordinated creditors, by means of write-downs or equity conversion, as an indispensable burden-sharing measure before public support could be deemed compatible with the restrictions on State aid.

    What is the Single Resolution Mechanism?

    The Single Resolution Mechanism (SRM) provides for centralized management of banking crises in the euro area. It is an essential part of the Banking Union, flanking the Single Supervisory Mechanism (SSM).

    The SRM has already begun preparations for the drafting of the resolution plans of the major European banks and will be fully operational as of 1 January 2016. The Mechanism also envisages a Single Resolution Fund (SRF) to be financed by contributions from banks in the participating countries and progressively mutualized.

    The Fund’s primary function is to finance resolution measures, by granting loans or guarantees. However, if some claims have to be excluded under the circumstances specified in the Directive … to prevent contagion, for example … within limits the Fund may absorb losses in place of the excluded creditors, reducing the size of the bail-in.

    A common European ‘backstop’ (a financial safety net of last resort) still needs to be designed to supplement the Fund’s resources so as to cope promptly with a crisis at a large bank. The recent Five Presidents’ Report on Completing Europe’s Economic and Monetary Union rightly sets this as a priority2.

    The SRM is a complex system embracing the national resolution authorities and a central authority, the Single Resolution Board (SRB), itself made up of representatives of the national resolution authorities and some permanent members.

    For the largest euro-area banks (those that qualify as ‘significant’ according to the SSM Regulation and cross-border banking groups), the Board lays down in advance, in the resolution plans, the procedures for dealing with a crisis, decides how to manage a crisis in practice when it arises, adopting a resolution scheme. It will then be up to the national resolution authorities to implement this scheme, exercising their powers under European legislation and transposed national regulations. The resolution scheme must also be submitted to the European Commission and, in some cases, to the Council as well3. This division of tasks also holds for minor banks whenever it is necessary for the Single Resolution Fund to intervene.

    In other cases, the national resolution authorities will retain responsibility for planning and crisis management, acting in any case according to the Board’s guidelines.

    What is the Bank of Italy’s role?

    The recent enabling law assigns national resolution functions to the Bank of Italy, which also serves as Italy’s designated national resolution authority within the Single Resolution Board and the European Banking Authority’s Resolution Committee and for related activities under Article 3 of Legislative Decree 72/2015.

    1 According to Eurostat, at the end of 2013 support to the national financial systems had increased the public debt by around €250 billion in Germany, €60 billion in Spain, €50 billion in Ireland and in the Netherlands, €40 billion in Greece, €19 billion in Belgium and Austria, and €18 billion in Portugal. In Italy public financial support was about €4 billion, all now repaid.

    2 The report is by Jean-Claude Juncker in close cooperation with Donald Tusk, Jeroen Dijsselbloem, Mario Draghi and Martin Schulz. Available at http://www.ecb.europa.eu/pub/pdf/other/5presidentsreport.en.pdf.

    3 At the proposal of the Commission, the Council may contest the satisfaction of the ‘public interest’ requirement or approve changes to the value of the Resolution Fund’s intervention under the scheme presented by the Board. If the Council confirms that there is no public interest, the resolution procedure is stopped and the entity is liquidated by the ordinary procedure. If the proposed change to the value of the Fund’s intervention is approved, the Board must consequently modify the resolution scheme within 8 hours.

    Text has been take from the Bank of Italy in May 2016.

  • BALASSA-SAMUELSON EFFECT (Encyclopedia)

    The Balassa-Samuelson (BS) effect analyses the relationship between the increase in productivity realised in the traded goods sector and the real exchange rate appreciation. It owes its name to the important contributions made by Bela Balassa (1964) and Paul Samuelson (1964). In particular, it captures the impact of higher productivity growth in terms of internationally traded goods … typically manufactures … on the relative prices and then on the real equilibrium exchange rate (Q), defined precisely by the ratio between the price index of tradable goods (PC) and the price index of non-traded goods (PN). In general, the BS effect explains why the prices of tradable goods tend to converge (net of transaction prices) at the international level, while this is not true for the prices of non-tradable goods, which indeed tend to be higher in richer countries (or in countries where the labour productivity in the tradable sector is higher).
    The underlying logic to the BS effect can be summarized as follows. Let’s assume that the law of one price (LOOP) holds for all internationally traded goods. In growing economies, it is plausible to consider that productivity growth is concentrated precisely in the production of these goods. This leads to an increase in wages that is not necessarily accompanied by an increase in prices. Unlike the non-tradable sector, the demand for higher wages leads to higher prices and consequently to a rise in the CPI. Since the LOOP will continue to be respected and the nominal exchange rate remains constant, the joint work of these forces results in an appreciation of the real exchange rate. The experience of Japan in the post-conflict phase is often cited as an example of the existence of the BS effect.
    In order to illustrate the mechanism that links the growth of labour productivity (pml) to the dynamics of the real exchange rate (Q), we consider an open economy with two sectors, that of traded goods (whose production level is indicated by YC) and non-traded goods (whose production level is indicated by YN). Both productions use two inputs, capital and labour, which are internationally immobile. Let’s assume further that work is perfectly mobile between the two sectors in the same country. This assumption implies the equality of the wages paid in the two sectors within the same country. Both sectors are perfectly competitive; therefore any input receives a remuneration equal to its marginal product.



    Let’s consider the situation described by Figure 1 (taken from Colombo and Lossani, 2003). The graph on the left shows:
    - the production possibility frontier (drawn under the hypothesis of decreasing marginal productivity), which represents the maximum production of tradable goods (YC) which the economy is able to produce for any given level of output of the non-tradable sector (YN);
    - the relative price line (whose slope is given by the ratio between the price of tradable goods (PC) and the price of non-tradable goods (PN));
    - the equilibrium point D0 where the marginal rate of transformation is equal to the price ratio.
    The graph on the right shows:
    - on the vertical axis, the marginal productivity of labour in both sectors (pmlN and pmlT );
    - on the horizontal axis, the workforce in the two sectors (LCand LN);
    - the equilibrium in the labour market where real wage w equals the labour marginal productivity.
    Let’s consider now the effects of productivity growth in the tradable goods sector. In the graph on the left, there is a "non- neutral" translation in the production possibility frontier: the same level of production of non-traded goods (YN) is now compatible with a higher output of traded goods (YC). In the graph on the right, the curve pmlC shifts to the right. The changed conditions in the labour market result in an increase in the equilibrium wage that implies a consequent increase in the level of prices of non-traded goods (PN). On the contrary, the level of prices of tradable goods (PC) does not change, since the increase in wages is accompanied by an increase in productivity.
    The increase of PN ,PC equal, entails:
    - a decrease in the slope of the relative price line which is now tangent to the new production possibility frontier, thus determining new production levels for the two goods;
    - a real exchange rate appreciation () proportional to the weight given to non-traded goods in the calculation of the general price index.
    Balassa (1964) also stressed an important empirical regularity. The comparison between developed and developing countries shows that productivity differentials are much higher in the tradable goods sector than in the non-traded goods sector. Let's consider a scenario that includes advanced economies and developing economies. It seems logical to assume that the differential in favour of the first in terms of labour productivity is greater in the tradable goods sector rather than in the non-tradable goods sector. Given that international trade determines an equalization of the prices of internationally traded goods, the lower productivity in the most backward economies results into lower wages and thus lower prices for non-tradable goods.
    In general, if a country experiences a higher productivity growth than that experienced in other countries, its real exchange rate tends to appreciate. This result has been corroborated by many empirical analyses.

    Empirical evidence on the BS effect

    Over the years, the empirical literature has provided equivocal contributions on the BS effect. Heston, Nuxoll and Summers (1994) consider the price differential of tradable and non-tradable goods by using data from the International Comparison Program (ICP). By means of various econometric methods, this study produced strong evidence of how the relationship between non-tradable and tradable prices and income is consistent with what the BS effect foresees.
    De Gregorio, Giovannini and Wolf (1994), in a study conducted on panel data of forty-OECD countries and aimed to analyse the weight of demand factors (e.g. public expenditure) in generating deviations from PPP, showed that changes in terms of trade exert a more important role in explaining the short-term fluctuations of the real exchange rate rather than the BS effect. In a similar analysis, but conducted on data from Asian countries, Chinn (2000) illustrated how both phenomena - demand factor and BS effect - explain little about the movements of the real exchange rate.
    More recently, Lothian and Taylor (2008), by analyzing data on the U.S.A., the UK and France over the period 1820-2001, identified a statistically significant BS effect for the pound-dollar exchange rate (but not for the French franc-pound), which explains about 40% of the deviation from its long-term value.
    Bibliography
    Balassa B., (1964), "The purchasing-power parity doctrine: A reappraisal" The Journal of Political Economy, Vol.72, pp. 584-596.
    Colombo E. and Lossani M. (2003), Economia Monetaria Internazionale, Carocci editore, Roma.
    Harrod R. (1939), International Economics, University of Chicago Press, Chicago.
    Lothian J.R. and Taylor M.P. (2008), "Real Exchange Rates Over the Past Two Centuries: How Important is the Harrod-Balassa-Samuelson Effect", Economic Journal, Vol. 118, Issue 532, pp. 1742-1763.
    Rogoff K. (1992), "Traded Goods Consumption Smoothing and the Random Walk Behavior of the Real Exchange Rate", Monetary and Economics Studies, Vol. 10, PP. 1-29.
    Rogoff K., (1996), "The purchasing-power parity puzzle" Journal of Economic Literature, Vol 34, pp. 647-668.
    Samuelson P.A. (1964), "Theoretical notes on trade problems", The Review of Economics and Statistics, Vol 46, pp.145-154.
    Sarno L. and Taylor M.P. (2002), The Economics of exchange rate, Cambridge University Press, Cambridge, UK.
    © 2009 ASSONEBB

  • BANCA AGRICOLA POPOLARE RAGUSA


    The history of Banca Agricola Popolare di Ragusa (BAPR … Agricultural Cooperative Bank of Ragusa) is tightly connected to that of the territory in which it operates, that is to say the town of Ragusa and southeastern Sicily. The connection with the local context is one of the specific traits of any ‘banca popolare’ (cooperative bank), yet in the case of BAPR it is very strong, so that the history of the territory and the history of the bank intertwine and influence each other giving life to an indissoluble pair.
    The bank was founded in March 1889 in a social and political context that was particularly favourable to the development of such institutes. Indeed, in that decade, the bases for an important modernisation of the area of Ragusa were set: in the field of credit this meant overcoming the traditional circuit dealers … bankers. Consequently, on 10 March 1889, also thanks to the hardship of Mutua Popolare … which had already been operating in town for several years … due to the economic crisis, a group of citizens of Ragusa1 signed the act of foundation of Banca Popolare Cooperativa di Ragusa in the office of the notary public Emanuele Cabibbo. The first shareholders paid the capital and started looking for new people to involve in the deed: by the end of the year, the young bank had already about sixty shareholders who underwrote shares for a total of 56,000 lire. Most shareholders were small and big landowners, while only a few were workers and representatives of other social classes. Differently from the majority of statutes adopted by other cooperative banks, the one of Popolare Cooperativa di Ragusa did not regulate the bank’s charity work.
    After having chosen a location for its headquarters, the bank started its activity: at the top of the Board of Directors, Giorgio Arezzo was named President and Giovanni Lupis was named Vice-President; whereas Carmelo Scribano had the honour of being the first Managing Director. The assets under administration grew rapidly, so that already in 1891 the capital stock amounted to 71,300 lire … the total assets under administration (average values) in the first years: 81,181 lire in 1889; 222,482 in 1891; 461,993 in the period 1892-1896; 561,507 between 1897 and 1901; 965,163 between 1902 and 1906.
    Therefore, Banca Popolare Cooperativa di Ragusa became a reference point for the other important banks of the time: in 1893 it became qualified to re-discount with Banco di Sicilia and Banca Nazionale del Regno (National Bank of the Kingdom) … later called Banca d’Italia (Bank of Italy). In the first years of the Twentieth century, it became the representative in Ragusa for Banca di Sicilia and Banca Commerciale Italiana. In 1902, at last, it became part of Associazione Nazionale delle Banche Popolari (National Association of Cooperative Banks). The greater dynamism of the early 20th century (in 1910 the first branch was inaugurated in Ragusa Ibla) was due to the new Managing Director Luigi Cartia: the shareholders obtained greater dividends …in 1903 the peak of 14% was reached … thus reinforcing at the same time the reserve fund.
    The first successes and the remarkable increase in dividends led to the birth of other rival banks: in 1902, Banca popolare Agricola cooperativa; in 1904, Banca cooperativa Agricola commerciale; and lastly, in 1910, Banca agricola commerciale la Popolare. Among these, the institute established in 1902 soon became the main competitor and it started overcoming Banca Agricola Popolare di Ragusa in terms of administered funds and deposits. At the time of Fascism, the link between the political framework, the territory and the development of the Bank became stronger than ever. The results were two: the institution of the province of Ragusa, and the recovery of the banking system started by the regime following the economic crisis of 1929. The first was of the highest importance for the future of the bank. The choice of Ragusa as capital of the province, instead of the “red” Vittoria and especially Modica (hub of the area since the early post-unity time), whose expectations were “certainly not unfounded” (also for its size: Modica counted about sixty thousand inhabitants whereas Ragusa had forty-eight thousand2), was due to the fact that Ragusa “home of Pennavaria (an Italian politician) was liked by fascists for the anti-proletarian reaction that spread successfully from it”3. The generous public works financed by the fascist regime made the economic crisis and the crash of the Banca italiana di Sconto (Italian Discounting Bank) have a less disruptive impact on the Ragusa area as compared to other areas of the country. The second result, that is to say the re-organisation of the banking system, created the right conditions for the merger of the four banks of the area: “considered from a national point of view, the merger was not exceptional. The fusion fitted in the process of simplification and recovery of the entire national banking system that the circumstances imposed”4 (indeed, the 4,328 banks present in 1927 became 1,424 by 1945. In particular, ‘Popolari’ … cooperative banks …decreased from 662 to 233). On 5 May 1935, indeed, the shareholders’ assemblies took place simultaneously and they decided on the merger into Banca Popolare Agricola Cooperativa that took the name of Banca Agricola Popolare di Ragusa. After the merger, the capital stock increased to 5,321, 400 lire divided in shares of one hundred lire each, a great part of which representing the two main banks: Banca Popolare Agricola Cooperativa … 75% - and Banca Popolare Cooperativa … 15%. The first President was Salvatore Ottaviano, representing the old Agricola Popolare, whereas Gianbattista Cartia, grandson of Luigi, member of Popolare Cooperativa, got the post of co-Managing Director together with two other members chosen in minor banks … Nicola Gulino and Giuseppe Licitra Salesio. Yet, because of the outbreak of World War Two, the positive effects of the merger could not fully deploy their potential. The post-war period was marked by the Cartia family that, with Giovanbattista, took the lead of BAPR. The recovery was noticeable, so much that already at the end of the 1940s, the capital stock had more than doubled as compared to 1945 and the investments had grown remarkably. New branches were opened in S. Croce in Camerina, Acate, Ispica, Vittoria and Marina di Ragusa. Later on, the BAPR managed to cross the borders of the province by opening more branches in Rosolini, Francofonte, Pachino and Carlentini. Finally, in 1977, the historical “landing” in Catania: "more than any other public and private bank, in those years, the BAPR developed the loan for craftsmen and farmers, by favouring small and very small enterprises … legitimately considered the skeleton of the economic system"5.
    From the 1970s until today, the BAPR has experienced only little alternation at its top, as a sign of continuity, which represents one of its strengths: Giovanni Cartia was Chief Executive Officer from 1970 to 2001; Vincenzo Spata followed from 2001 to 2006; and lastly, Salvatore Inghilterra is CEO since 2006. Giovanbattista Cartia was President from 1970 to 1988; Mario Schininà from 1988 to 2002; since 2002, Giovanni Cartia, who was also Managing Director from 2001 to 2009, is President. Between the end of the 1980s and the beginning of the 1990s, the evolution of the European framework which matured from Berlin …fall of the Wall - and Maastricht …signing of the Treaty on European Union … passing by the European Single Market, had effects on the BAPR as well. The complex chain of mergers, acquisitions, assimilations and restructurings that took place in the Italian banking system, like those of other Member States of the European Union, concerned the institute of Ragusa as well, even if to a lesser degree than other cooperative banks.
    In the early 1990s, the BAPR still operated with only 28 branches, concentrated especially in the province of Ragusa, but present also in the province of Siracusa and Catania. Thanks to the liberalisation of sites allowed by the Supervision Authorities, a period of quick development started. In 1997, it became the leader of the homonymous Banking Group, by getting the control, by means of a public take-over bid, of Banca Popolare di Augusta. Between 1997 and 2003, it merged four times through the acquisitions of cooperative banks …BCC di Linera, BCC di Belpasso, BCC di Itala …and, lastly, of the very Banca Popolare di Augusta. In 2000, it acquired control of the company Concordia SIM S.p.A. (Ltd), re-named FinSud SIM S.p.A., and headquartered in Milan, where a branch was opened in 2001. In 2008, ten branches of Banco di Sicilia, located in the provinces of Messina and Catania, were acquired. In 2010, the branches were a total of 98, 97 of which in Sicily … in the provinces of Ragusa, Siracusa, Catania, Enna and Messina … and one in Milan.
    The BAPR favoured a strong and constant policy of capitalisation throughout the years, thus infusing an image of solidity and trust in the future in the investors and costumers, a strong feeling of protection for savings, and a deep sense of respect for work, as the elective field of expression of human value. BAPR’s body of shareholders has a widespread structure and today it is composed of about 15,000 shareholders residing for almost the totality in the areas where the Bank operates, as they usually are also its costumers.
    Meanwhile, the development undertaken required a new head office and registered seat. In 1991, a modern, rational and prestigious administrative centre was bought for this reason, and it was inaugurated in 1995. With regret, but aware of the necessity and of the new opportunities, the institutional management left the liberty-style building in the historical centre, which continued to host the branch number “zero”, the Seat of Ragusa.
    The BAPR strengthened its tie with the territory also through widespread liberal disbursements and sponsorships, some of which were of remarkable visibility: for instance, in the field of sports, the male basketball team Virtus Ragusa, which, in the championship 1997-1998, played some good seasons in the A2 series; in the field of scientific research, the sponsorship in favour of the foundation San Raffaele del Monte Tabor in the framework of the project “Trapianto di cellule staminali neurali somatiche come nuovo approccio nel trattamento della sclerosi multipla” (“Transplant of somatic neural stem cells as a new approach in the treatment of multiple sclerosis”). In the cultural field, in 2010, the BAPR promoted the establishment of the foundation “Doris e Cesare Zipelli” in order to administer part of the valuable collections of prints and ancient ceramics belonging to the eclectic man of refined culture and sensitivity who animated Ragusa’s society at the end of the last century, and who had recently died.
    Under the leadership of Giovanni Cartia (awarded in 2010 with the title of ‘Cavaliere del Lavoro’- that is to say decorated for his service to industry, TN), the BAPR showed dynamism and ability to evolve, by putting together the principles of cooperation inspired by Luzzatti and the innovative movements of globalisation: the values of Economic Democracy, Proximity and Solidarity kept characterising this local Bank, the only one among cooperative banks in Sicily to maintain its corporate independence and to represent with continuity the original economic and professional components, by interpreting the concept of “mutuality” as a feeling of “territorial solidarity”.
    The orientation of investments in favour of families and enterprises of the area of reference, granted to reward hard-workers and meritocracy; the important support to employment; the services in support of local institutions; the frequent support to social initiatives, in particular to the weakest parts of the population and to non-profit associations; the will to preserve the precious artistic and cultural heritage represented by local artistic and artisan traditions and know-how as valuable resources for the development: they all testify the consistency of an engagement that lasts over time and wants to accompany its community in a real growth of civilisation.
    The principles of Social Responsibility and Economic Ethics that Banca Agricola Popolare di Ragusa follows in its action are summed up in the message of its recent corporate communication, which is both a statement of purpose and an exhortation to rebirth: “Sicilia, Crescere nei Valori” (“Sicily, to grow into values”).

    _________________________________________
    1Luigi Cartia, Giorgio Morana Gulino, Giovanni Lupis, Corrado Schifitto, Gaetano Nicita, Vincenzo Cannì, Filipponeri Criscione and the engineer Carmelo Scrivano.
    2Vittorio A., Economia e società a Ragusa: 1930-1980, in Di Stefano M., Granozzi L., Micciché G. and A. Vittorio, La Banca Agricola Popolare di Ragusa. Frammenti di un secolo di storia (1889-1989), Palermo, Sellerio Editore, 1989, p. 210.
    3Micciché G., Politici e banchieri nell’area degli Iblei, in Ibidem, cit., p. 144.
    4Granozzi L., La formazione di un’azienda regionale di credito, in Ibidem, cit., p. 56.
    5Vittorio A., Economia e società a Ragusa: 1930-1980, cit., p. 155.

    Link: (in Italian only) www.bapr.it


    Editor: Massimo PIERMATTEI?

  • BANCA FIDEURAM

    Banca Fideuram S.p.A. is part of Gruppo Intesa Sanpaolo and it is specialised in the production, management and distribution of financial products and services. Banca Fideuram believed in and focused on financial consulting since its establishment more than forty years ago, at a time when only current accounts, deposits and Treasury bills were the options available on the market. Therefore, it presented itself as a provider of personalised assistance and innovative solutions in the field of assets and savings management.
    Through its 4,850 private bankers (of which 3,345 belonging to the Fideuram network, and 1,505 to the Sanpaolo Invest network), the bank offers financial consulting, as well as insurance and pension solutions. A personalised offer, the attention to details, a leadership attitude and the fact of belonging to a prestigious banking group have made Fideuram one of the main protagonists in the private banking sector in Italy.

    The most important steps in Fideuram’s history:

    1968: IMI created a new subsidiary, Fideuram, to market Luxembourg-based mutual fund products.
    1984: Fideuram launched the first Italy-based mutual fund.
    1996: Fideuram was listed on the Italian Stock Exchage's MIB 30 index.
    1997: Fideuram diversified into private banking operations.
    2002: Banca Sanpaolo Invest was acquired from parent San Paolo IMI.
    2004: Banca Fideuram widened its offer with multibrand products of the best International investment providers.
    2006: Banca Fideuram launched the private equity investment to retail costumers.
    2007: Banca Fideuram implemented the MiFID, the regulation that officially recognized the role of the financial consultant, thus establishing Fideuram’s consulting model.
    2009: SEI, a new approach to the planning of clients’ needs, was established.

    Banca Fideuram developed as an offshoot of Italy’s Instituto Mobiliare Italiano, or IMI, created in 1931. IMI had developed a strong business in investment banking, asset management, and other private banking services. The decision of the International Overseas Services in the late 1960s to withdraw from the operation of mutual fund investments opened a new opportunity for IMI. In 1968, it created a new subsidiary, Fideuram, which began offering the Luxembourg-based Fonditalia and Interfund mutual fund products to the Italian market. The new company was backed by a team of more than 300 private bankers, who began promoting its products throughout the country. Into the next decade, Fideuram remained limited to promoting foreign fund investments, but in 1984, Fideuram began marketing Italy’s first domestic funds, Imirend and Imicapital, backed by parent IMI.
    Fideuram represented just one part of IMI’s mutual funds and assets management operations. Another important part of IMI’s assets management business was Banca Manusardi, which functioned as IMI’s inhouse bank, providing back-office processing for its mutual funds business. In 1992, in the merger between Banca Manusardi and Fideuram established a new company named Banca Fideuram, with its shares listed on the Borsa Italiana, Italian Stock Exchange.
    Banca Fideuram started out as a giant in Italy’s investment banking sector, with 22 Fideuram bank branches and a nationally operating army of more than 2,200 sales agents working from 220 sales offices. The new Banca Fideuram also included insurance products, notably through the subsidiaries Fideuram Vita and Fideuram Assicurazioni. Mutual funds remained the company’s primary focus, however, and, with control of such mutual fund products as Fideuram Gestioni and part-ownership of Imigest, another top Italian mutual fund, Fideuram was the clear market leader. By the early 1990s, Banca Fideuram controlled more than 21 percent of the total mutual fund market.
    Fideuram grew strongly into the middle of the 1990s. By 1996, the company was valued among the top Italian public companies, and its listing was added to the prestigious MIB 30 index. By then, Fideuram had begun to diversify its product offering. Among the company's new products was a new "Umbrella Fund" launched in 1995 and modelled after the British-styled multilevel funds. In 1997, the company branched out into personalized financial planning and other private banking services through a partnership with the United States' Frank Russell group.
    The late 1990s and early 2000s marked a new phase in Fideuram’s growth as the company turned toward developing an international base of operations. In 1998, the bank established its first foreign subsidiary in Luxembourg. This was followed in 2001 by the creation of a Swiss subsidiary, in the town of Lugano. By then, Fideuram had moved into the French market as well, when it acquired Groupe Wargny in 2000. In 2001, Fideuram consolidated its French presence, regrouping its operations in that country under a new subsidiary, Banque Privée Fideuram Wargny. The growth of Fideuram’s international operations -which, by 2003, represented 15 percent of the bank’s total net revenues -enabled Fideuram to sharpen its focus around a core of assets management and private banking services. In 2002, the group’s operations were boosted through an agreement to acquire San Paolo IMI’s own financial services and investment consulting arm, Banca Sanpaolo Invest. The addition of the new operation, with its own strong brand and more than 1,500 financial consultants, boosted the total assets under Fideuram’s control, placing Fideuram among the top assets management groups not only in Italy but throughout Europe.
    With its newly fortified focus as a provider of financial services, assets management, and private banking, Fideuram moved to simplify its own structure at the beginning of 2004. In February of that year, Fideuram and Sanpaolo IMI (now Intesa Sanpaolo) announced their intention to de-merge Fideuram Vita from Fideuram, transferring ownership of the insurance operation to San Paolo IMI. In 2005, the equity of Sanpaolo IMI in Banca Fideuram was given to the newly established Eurizon Financial Group S.p.A., directly controlled by Sanpaolo IMI. In 2006, Fideuram launched an investment in Private Equity to Retail costumers, and the following year the MiFID regulation officially recognized the role of private bankers and Fideuram’s consulting model. In 2006, Key TV, the business TV of Gruppo Banca Fideuram was set up. In 2007, following the public takeover bid by Eurizon Financial Group, Banca Fideuram’s shares were delisted from the Telematic Stock Exchange and it became completely controlled by Intesa Sanpaolo as a consequence of Gruppo Eurizon’s reorganisation. Therefore, all the activities and functions previously ceded to Eurizon were reintegrated into Banca Fideuram. In 2008, the 40th anniversary was celebrated. In the same year, Fideuram Wargny Gestion SAM in Monaco was transformed into a bank (Fideuram Bank Monaco SAM), whereas Banque Privée Fideuram (today Fideuram France S.A.) gave back its banking license. In 2009, the Group started the advanced consulting service SEI, a new approach to the planning of clients’ needs, and the first two Private Centres in Turin and Milan were opened. The Private Banker network of Banca CR Firenze was integrated into Sanpaolo Invest SIM, and the merger by takeover of Fideuram France S.A. into Financière Fideuram S.A. was completed. Lastly, the arm of Banca Fideuram dedicated to security custodian was transferred to Intesa Sanpaolo Servizi Transazionali S.p.A.. In 2010, in the frame of a reorganisation of the insurance and pension sector, Fideuram Vita was established: Banca Fideuram held 19.99% of the new insurance company, whereas Intesa Sanpaolo held the remaining 80.01%. In the same year, the liquidation of Fideuram Bank Monaco SAM was completed, while Banca Fideuram and Sara Assicurazioni signed a deal for the acquisition by Banca Fideuram of Banca Sara S.p.A.’s entire share capital. In 2011, Banca Fideuram took over Banca Sara S.p.A. and the process of integration was completed by means of a total division of the latter. With regard to foreign activities, Banca Fideuram and Fideuram Bank Luxembourg signed a contract of assignment with Banca Credinvest S.A., thus disposing of Fideuram Bank Suisse A.G.. In October, the private banking activity of Fideuram Bank Luxembourg was assigned to Société Européenne de Banque, a company belonging to Gruppo Intesa Sanpaolo. In the area of research and development, Banca Fideuram started the project Fideuram Mobile Solution, which, thanks to the latest technologies, allows to dedicate more time to the relation with the client, thus simplifying private bankers’ operations. In 2011, the bank kept implementing the “Patti Chiari” regulation promoted by ABI (Association of Italian Banks) in order to improve the relations between banks and clients, and it gave new impulse to above-the-line and below-the-line marketing through advertising, flyers, events and so on.
    In 2011, Banca Fideuram devolved €250,000 to charity, in support of aid agencies, as well as of scientific research and cultural organisations. The bank is also engaged in fostering green behaviour at work.
    Banca Fideuram’s head office is in Rome, while a secondary one is in Milan. The bank and its private bankers are present in the main Italian cities with 190 offices and over 100 branches. Abroad, it is present in Ireland, France and Luxembourg.
    At 31/12/2011, the number of clients of Fideuram and Sanpaolo Invest networks was equal to 624,000.
    In 2011, the assets under management were 70,949 million euros, the net collection 1,717 million euros, the net profit 175.1 million euros, and the consolidated net worth 549,2 million euros.
    The Administrative Board is composed of Enrico Salza (President), Angelo Caloia (Vice President) and Matteo Colafrancesco (Managing Director).



    ?Links: (in Italian only) www.bancafideuram.it

    Intesa San Paolo Group http://www.group.intesasanpaolo.com/scriptIsir0/si09/eng_index.jsp

  • BANCA POPOLARE DEL LAZIO

    Banca Popolare del Lazio is a “società cooperativa per azioni” (public cooperative bank), whose head office is in Velletri, in the province of Rome.
    The bank was established in 1904 as Cassa agricola operaia Pio X (Agricultural and Workers’ Credit Bank) following Silvio Pellico’s petition and thanks to the donation of 1,000 lire by the Pope, whose name was added to the bank’s name as a sign of thankfulness. The bank was established with the precise objective of helping the less well-off.
    In 1937, it changed its business name into Banca Cooperativa Pio X (Cooperative Bank Pio X), maintained until 1994, when it adopted the current name as a consequence of the merger with Banca Popolare di Terracina. With such a name, it became part of the category of “Banche Popolari” (Cooperative Banks).
    In 1943, the head office of the bank was destroyed by a bombing and its financial means were transferred to Rome. At the end of the war, the bank moved back to Velletri, where it supported the re-establishment of the towns activities, also absorbing some Casse Rurali (rural cooperative banks) in the neighbouring towns. Together with its territory, the bank grew and developed during the following twenty years. In the 1970s, the growth of the bank imposed a review of its organisational and managerial model, which was entrusted to the newly-elected CEO dott. Prof. Renato Mastrostefano in 1977. Thanks to this role, he was awarded public acknowledgement in the framework of Banche Popolari. In 1984, the Head Office and the Directorate- General were transferred from the historical headquarters in Via del Comune in Velletri, to the modern and spacious building in Via Martiri delle Fosse Ardeatine, the current headquarters of the bank. In the second half of the 1980s, a branch in Padova was inaugurated, while the branch of Cori was transferred to Ciampino, as the area appeared economically more active. In 1990, the branch number 1 in Rome was opened, and the following year a new one was opened in Latina. Three more branches were opened in 1992 and 1993. In this year, the need to change the word “cooperativa” (cooperative) with “popolare” (people's) was felt, for a greater recognizability in the areas of operative establishment. In this way, Banca Popolare Pio X was established. Yet, in 1994, the merger between Banca Popolare Pio X and Banca Popolare di Terracina was completed: Banca Popolare del Lazio was then created with the aim of widening the operative network in the entire region. In the following years, branches in Albano Laziale, Frascati, Tivoli, the branch n.3 of Rome and branches in other towns and villages were opened. In 1997, dott. Prof. Mastrostefano ended its role as CEO and Rag. Luciano Fagiolo took after. In the first years of the new millennium, new branches opened, among which the one in Aprilia, whereas the expansion in Rome continued with new branches. In 2004, at the time of the 100th anniversary, the bank reached the area of Frosinone with a branch in Anagni, followed by Frosinone itself. In 2006, in the branch n. 9 of Rome, the new service of Private Banking was introduced, whereas in 2007 a new phase of expansion was started, with six new branch openings planned. In 2009, the Assembly of Shareholders approved the new statute of the bank, which implemented the changes required by the Supervisory Authority with reference to governance. The project of corporate governance was approved by the Board of Directors and dott. Prof. Mastrostefano, who had been CEO and MD, became Chairman of the bank. In 2010, rag. Massimo Lucidi was appointed CEO. The expansion of the bank continued in 2011 with the opening of a branch in Viterbo, a new branch in Rome and the project for one in Civita Castellana (Viterbo).
    Banca Popolare del Lazio is today a stable presence in the region with 53 branches, of which 34 in the province of Rome, 14 in that of Latina, 4 in the province of Frosinone and one in Viterbo. Currently, it is the biggest independent Banca Popolare in the Lazio region. It maintains its cooperative spirit with the aim of creating value for shareholders, by supporting the needs of its communities, especially of families and small and medium sized enterprises, and by contributing to the enhancement of the territories served.
    The bank is also engaged in actions of social and cultural promotion through the numerous aid, sports, religious and educational initiatives promoted by local institutions and associations. In order to best answer to the needs of its clients, the bank has activated various operative channels, focusing on a multi-channel and multi-product approach. It was one of the first banks to apply the typical logic of retail to the financial system, by realising a fidelity program that awards those who use its services the most; for instance, Operazione Energia, a competition with prizes for current account holders as well as other clients, at its 11th edition in 2011.
    As at 31.12.11, Banca Popolare del Lazio has 6,246 effective associates and 357 shareholders who are not registered in the bank’s list of shareholders, with equity claims only. The social capital is of 22,715,241 euros, divided into 7,571,747 shares with a nominal value of 3.00 euros.

    Link: (in Italian only) www.bplazio.it

  • BANCA POPOLARE DI SPOLETO S.p.A.



    Before 1889, the banks in Spoleto were Cassa di Risparmio, Banca Laurenti & C., Banco Ferretti, Banco Fratellini and Banco Poli1. Around 1890, the difficulties faced by Banca Laurenti & C. had repercussions on the other banks, by involving them and creating difficulties with negative effects on the entire society of the town. The end of banks that, even though small, had fuelled the productive activities of Spoleto and of the near Terni was a mortal blow for the economy: even the hope in a future recovery seemed inhibited, and mistrust towards the banking system spread. After a useless attempt to open a branch of Banco di Perugia, Giulio Cesari, teacher of law and economics at the Istituto Tecnico “G. Spagna” in Spoleto, came up with the idea of a “Banca Popolare Cooperativa” (Cooperative Bank), where the resources of all citizens … even modest … could flow together avoiding external interests2. On 28 April 1895, through a notarial act by notary public Domenico Arcangeli, written and registered by the lawyer Mr Sinibaldi, Banca popolare cooperativa di Spoleto was established3: forty-seven shareholders were present, who subscribed 143 shares of thirty lire, payable in fifteen monthly instalments of 2 lire each, for a total capital to be deposited of 4,290 lire4. Giulio Cesari became the Chief Executive, a post he kept until 1951. In 1896, by reading to the shareholders the annual report of the Board of Directors at the end of the first year of activity, he underlined the constant increase in shareholders even if the profit was of only 851 lire.
    In the first twenty years of activity, the managers avoided “operations out of proportion to the potential” of the bank, by limiting themselves to small operations, especially with regard to farming and trade5, which corresponded to the objective of the institution, that is to say promoting and supporting the process of building farmers, craftsmen and traders’ savings. Through such a management, the trust deposits increased every year, going from 5,607 lire in 1895 to 12,333,299 in 1919, thus allowing the managers to contrast different investment techniques: in this way, the total volume of debt certificates increased from 9,306 to 12,448,139 lire; that of advances on the deposit of valuables from 188 to 88,041 lire, and that of active bank accounts from 1,059 to 1,507,503 lire. The activity of investment and collection was realised through the discount of bills of exchange and working papers, loans to shareholders, advances to non-shareholders against surety of public securities, the opening of bank accounts with promissory note guaranty and deposits from shareholders to third parties, the emission of bank cheques payable by all the main offices and branches of the Bank of Italy, the acceptance of bills to be cashed by any financial centre of the Italian kingdom and abroad, and the payment of six-month interests on Italian registered certificates of annuity6. In 1897, the managers made the territory of Spoleto bankable, thus obtaining, by means of a personal warranty of 20,000 lire, the right to represent locally the Bank of Italy and the following year, against the deposit of Italian certificates of annuity with a 5% interest rate for a total of 1,000 lire, that of Banco di Napoli.
    In 1900, the Bank allowed the discount on transfers of Cassa di Prestiti e Risparmi di Cascia; in July 1903, it opened a transfer account with Banca Popolare Cooperativa di Norcia and in 1903 an account with Banca Cooperativa di Terni, with Banca di Perugia and with Cassa di Risparmio di Spoleto. In 1903, the bank started the emission of registered securities of Banco di Napoli, by lending a bail of 10,000 lire of State annuity, deposited in the coffers of the Bank itself. In 1904, it granted the opening of a credit in favour of the municipality of Spoleto, a promissory note to Consorzio (syndicate) del Maraggiolo, and in 1905 it appointed a commission for the update of some statutory rules with the aim of simplifying the functioning of its activity. In 1906, the possibility of a merger of Banca Commerciale with Banca di Perugia, which would have determined the suppression of some agencies, offered Banca di Spoleto the chance of expanding its sphere of influence, objective realised in 1907 with the opening of a branch in Bevagna, then in 1908 with the opening of a branch in Trevi and in Arrone, in 1911 in Leonessa, in 1913 in Cascia, and in 1919 in Cerreto and Sellano7.
    The outbreak of World War One had effects on the banks, of course. The difficulties were highlighted in the Board of Directors’ report of 1916, in which it was made reference to some earthquakes that “ravaged Italy”. The greatest difficulties came from the lack of possibility to invest, as a consequence of the economic crisis, even though in these years there was a remarkable increase in the number of associates, who went from 254 in 1895 to 1,226 in 1919, and then remained pretty much unchanged between 1920 and 1944. In the early 1920s, the Bank experienced a noteworthy rise in deposits, in line with the expansive trend of the local economy after the crisis of the years following the end of WW1, followed between 1924 and 1929 by a weak development of their collection caused by the crisis of stabilisation due to the “Quota 90” (fixed exchange rate of the lira against the pound sterling, TN) and the world exchange rate. In the following years, the Bank supported all the activities of small and medium enterprises, factory farms, and businesses thanks to its deep knowledge of the local resources and needs. Moreover, it granted loans to the municipalities of Spoleto, Gualdo Cattaneo, Cascia, Arrone, Acquasparta, Norcia, Preci, Montefalco, Monteleone di Spoleto, Sellano, Scheggino and Leonessa for the expenses of construction of new waterworks, drinkable water pipelines and widened electrical systems8. In 1936, the Bank obtained the authorisation to perform the operations of working capital credit for farms, thus continuing to carry out its consistent work of support to the needs of agriculture. In 1941, it participated in the increase in capital of Istituto Centrale delle Banche Popolari Italiane, an institute whose aim was that of strengthening such banks, by undertaking, in 1943, the service of emission of bank cheques, in the interest and for the reputation of the category of cooperative banks. In order to take better care of the needs of the population, to fight usury, and to grant costumers the best facilities compatibles with the safety of operations, the Bank carried out a policy of further territorial expansion: the branches of Monteleone di Spoleto, Giano dell’Umbria and Gualdo Cattaneo (1920), Preci (1921), Stroncone (1922), Norcia (1923) and Amelia (1925) were opened. In the early 1920s, the façade of the Bank in piazza Pianciani was built; the building, bought entirely in 1909, was inaugurated after the renovation on 28 March 1925. Approved by the Ispettorato per la Difesa del Risparmio e per l’esercizio del credito (Inspectorate for the Defence of Savings and Credit Activity), and recognised by the Comitato dei Ministri (Committee of Ministers), on 16 June 1940, the extraordinary meeting of shareholders approved the new Statute9, widened on the basis of the standard statutes for cooperative banks.
    In the 1940s, a new engagement towards shareholders, customers and in general all the members of the local context was added to the activities of the bank: firstly, the yearly donation of a share of profit to the creation of a fund in order to support important actions of public charity (such as the Committee of assistance to war orphans, the Association of disabled ex-servicemen, the working-class associations, the School of popular culture, the School houses, the Kindergartens, the “Ricreatorio popolare e cattolico” (popular and catholic leisure facility, TN), the “Legione dei giovani esploratori” (legion of young explorers), the Civil charity institutes, the municipal summer camps); secondly, the contribution to the capital of the new bank for the work of Italians abroad and the subscription of 500,000 lire in favour of the Prestito Littorio (a public loan, TN) that was tightly connected to the policy of revaluation of the Italian currency; thirdly, the participation in the expense for the monument in honour of the citizens who lost their lives defending the homeland, and in the renovation works of the church of San Damiano and the new hospital; fourthly, the creation, with 400,000 lire, of a special fund designed to support the construction of a block of workman’s houses.
    Immediately after WW2, the Bank felt the need to have a larger territorial base with a greater possibility of action, as well as the need to adjust quickly to the demands expressed by the new economic situation. From a financial point of view, the Bank, that had a net capital of 8,193,200 lire in 1945, reached the level of 253,150,097 lire in 1960. On 15 August 1951, after fifty-six years of nonstop and intense activity, Professor Giulio Cesari ended his managerial role, yet keeping the post of vice-president until February 1960. In the first months of 1954, the Bank underwent recurrent inspections ordered by supervisory bodies and, as it can be read in the report by the Board of Directors, a “solid capital stock” emerged. A decisive step outside its first and immediate area of influence was taken by the Bank in 1950 through the institution of a branch in Perugia, followed by the ones in Assisi, Castiglione del Lago and San Terenziano. In 1953, the premises for the branch of Bevagna were bought and the new branch in Norcia was built. The year after, Palazzo Ajò was bought to host the branch of Perugia, and it was inaugurated on 22 June 1958. In 1954, the inter-regional union between the banks of Umbria and Tuscany was constituted with the aim of examining common problems and enhancing the activity of the banks. On 27 March 1949, the Bank, founded with the name of “Banca Popolare Cooperativa di Spoleto”, took the new one of “Banca Popolare di Spoleto … Cooperativa a responsabilità limitata” (Cooperative Bank of Spoleto … Ltd).
    In this way, the Bank arrived to 1960, the year of the economic miracle for the volume of investments and the prodigious development of some sectors of production. With an official act on 30 July 1992, Banca Popolare di Spoleto Società Cooperativa a responsabilità limitata, by taking the opportunity offered by the law “Legge Amato”, hived itself off into Banca Popolare di Spoleto S.p.A. (Ltd) and Spoleto Credito e Servizi Società Cooperativa. The latter became the main shareholder of BPS S.p.A., which succeeded in the rights and legal duties previously entitled to Banca Popolare di Spoleto Società Cooperativa. Since September 1996, Banca Popolare di Spoleto S.p.A. is listed on the Milan Stock Exchange, Borsa Valori di Milano (http://www.borsaitaliana.it/homepage/homepage.en.htm). In July 1998, a strategic trade agreement was signed in order to establish relations of participation and collaboration with Banca Monte dei Paschi di Siena (which bought 25% of the shares of Banca Popolare di Spoleto S.p.A.) and with the banking group it belongs to, in order to offer a broad range of products and services to their customers.
    Today, there are 107 branches open to the public, distributed in 15 provinces (Perugia, Terni, Rieti, Roma, Latina, Viterbo, Siena, Arezzo, L’Aquila, Teramo, Ascoli Piceno, Macerata, Fermo, Ancona, Milano), while the customer base reached, at the date of 30 September 2010, 131,049 units and a total collection of 3,778 million euros.

    Corporate bodies
    The Board of Directors, composed of fourteen members, was appointed by the Assembly of Shareholders on 29 April 2010 and it will be on duty until the approval of the balance sheet for the financial year ending 31 December 2012.
    The Assembly itself has appointed the three effective members and the two deputy members of the Board of Statutory Auditors.
    President of the Board of Directors: Giovannino Antonini
    President of the Board of Statutory Auditors: Michele Fesani
    Chief Executive Officer: Alfredo Pallini
    Vice Chief Executive Officer: Mauro Conticini

    ____________________________________
    1See F. Trevisan, Gli istituti di credito di interesse locale in Umbria, in Gli archivi degli istituti e delle aziende di credito e le fonti d’archivio per la storia delle banche, Atti del Convegno, Roma, 14-17 Novembre 1989, Ufficio centrale per i beni archivistici, Roma, 1995: 689-690.
    2See B. Conti, La Banca popolare di Spoleto dalla fondazione al 1929, Tesi di Laurea a.a. 1971/72 (Degree Thesis, academic year 1971/72)
    3The bank was going to be headquartered in four rooms on the second floor of Palazzo Pianciani for the price of 30 lire a month.
    4The members of the board were: president: Giuseppe Bachilli; advisers: Amico Rossi, Oliviero Sansi (baron), Geri Morelli De’ Pazzi (earl), Emilio Toni (earl), Roberto Silvestri (engineer), Francesco Antonelli (lawyer), Anchise Pompei (accountant), and Ulisse Cardelli (lawyer); auditors: Ettore Bottelli, Attilio Marini, Enrico Antonelli; deputy auditors: Francesco Bocchini and Pompeo Bresadola (engineer); arbitrators: Luigi Santini, Professor Francesco Pennacchietti, Andrea Pila (earl). See Spoleto. 1895-1995. Una banca, una città, un territorio, edited by G. Calzoni and A. C. Rossi, Banca Popolare di Spoleto, 1995: 77-78.
    5“Giovane Umbria” 6 may 1900.
    6See Spoleto 1895-1995. Una banca, una città, un territorio, edited by G. Calzoni and A. C. Rossi, cit. page 81.
    7See B. Conti, La Banca popolare di Spoleto dalla fondazione al 1929.
    8See Spoleto 1895-1995. Una banca, una città, un territorio, edited by G. Calzoni and A. C. Rossi, cit. page 88.
    9The new statute simplified the functioning of the company, and it increased to 10 the number of members of the Board of Directors, it created the post of vice-president, and it fixed the retribution of managers at 3% of the yearly profit. The Statute was modified in 1948.

    Up-to-date as of 1 December 2010
    Link: (only in Italian) www.bpspoleto.it
    Editors: Banca Popolare di Spoleto S.p.A. and Maurizio Ridolfi

  • BANCA POPOLARE DI VICENZA

    Acronym: BPVi.The bank has been foreclosed by the Italian Minister of Finance, according to the banrkuptcy law. Its good assets have been purchased by INTESA SANPAOLO GROUP

    HISTORY OF THE BANK

    Founded in 1866, Banca Popolare di Vicenza is among the very first cooperative banks in Italy from a chronological point of view. Deep-rooted in its province of origin, the Bank started to spread in the 1980s, through the opening of branches and the takeover of small cooperative banks in the entire Northeast. The banks that were taken over and incorporated were: Banca Popolare Agricola di Lonigo in 1985, Banca Popolare di Thiene in 1988, Banca Popolare di Sette Comuni- Asiago in 1991, and Banca Popolare di Venezia in 1994. Later on, controlling interests were acquired in other banks, some of which also merged into the bank: Banca Popolare di Casterlfranco Veneto, Banca Popolare di Treviso and Banca Popolare di Trieste in 1996, Banca Popolare della provincia di Belluno in 1997, Banca Popolare C. Piva di Valdobbiadene and Banca Popolare Udinese in 1998. In September 1998, Banca Popolare di Vicenza became part, together with Banco Bilbao Vizcaya Argentaria S.A. (BBVA) and Assicurazioni Generali, of BNL’s reference shareholders, by buying out about 8% of it, half of which was sold in 2001. Since 2000, the Bank has started a process of expansion outside the region Veneto. Banca Idea, a multichannel bank that offers banking, financial and insurance services through contact centres, the Internet, financial promoters, and branches, was founded in Milan. In the same year, the ‘Progetto Centro-Sud’ (Project for Central and Southern Italy, TN) was realised through the creation of Banca Nuova in Palermo, a bank operating for now only on the island, in the regions Calabria and Lazio through about thirty branches, and that acquired control of Banca del Popolo in Trapani (founded in 1883) and its forty branches. Banca Nuova operates through the traditional counters, door-to-door services, and the Internet. Lastly, at the beginning of 2001, in the Northwest, branches of Gruppo Banca Intesa were bought out, thus increasing the territorial network of the bank to Genoa, Pavia, Parma, Piacenza, Asti, and Imperia. Abroad, the network is constituted of BPV finance international Ltd in Dublin, and minority shares were bought in banks in Slovenia, the Czech Republic, the Slovak Republic, Hungary, and Croatia. A representative office was opened in Hong Kong, as well as BPV Suisse, a branch ruled by Swiss law operating in private banking, and, in particular, in the management of securities and in financial and general consultancy. At the end of 2002, Cassa di Risparmio di Prato entered in Gruppo BPVi. In 2003, Banca Popolare di Vicenza ranked 19th in the Mediobanca ranking list. In 2005, Prestinuova S.p.A., a company headquartered in Palermo, which provides guaranteed loans against one-fifth of the paycheck, was founded. In 2007, 61 branches of Gruppo UBI Banca in the province of Brescia and Bergamo were taken over by BPVi with the aim of increasing its presence in Lombardy. In the same year, the Bank acquired a share of 38.88% in Farbanca, an institute of Bologna specialised in the offer of banking services in the pharmacy sector. Moreover, it started a strategic partnership with the insurance company Gruppo Cattolica Assicurazioni for the distribution of insurance products through the commercial network of Banca Popolare di Vicenza. In 2010, two important openings of representative offices took place: one in Milan, in Via Turati 12, where the offices of Guardia di Finanza (Italian military corps dealing with customs, excise and tax crimes, TN) are located as well, and one in Rome, in Piazza Venezia. In 2011, instead, representative offices were opened abroad: Sau Paulo in Brazil and New York, in addition to the already existing offices in Shanghai, Hong Kong and New Delhi.
    Furthermore, in 2011, the Group assumed a new strategic organisational setup by means of the merger of the already controlled Cassa di Risparmio di Prato and Banca Nuova with the group leader Banca Popolare di Vicenza. At the same time, Banca Nuova was hived off without the Lazio branches. Today, Gruppo Banca Popolare di Vicenza has more than 680 branches across the country, 5,600 employees, a million clients, and about 60,000 shareholders.
    The presence of the bank abroad, besides the aforementioned representative offices in China, India, Brazil and the USA, the financial shares in central-eastern Europe (Slovenia, Croatia, the Czech Republic, the Slovak Republic, Hungary, Romania, Bosnia Herzegovina, where it operates through “international desks” in local partner banks), and the two companies ruled by Irish law based in Dublin, is guaranteed by cooperation agreements with the main foreign banks, for a total of 47 agreements in 29 countries, among which, for instance, Spain and Taiwan.
    The Bank has always kept a strong tie with its territory through cultural, social and sports projects. Among these, there is the improvement of Palazzo Thiene in Vicenza, and Palazzo degli Alberti in Prato, both historical headquarters of banks; the participation in health projects (“Progetto Sanità”) and sports projects (sponsorship of the first-team and the youth sector of Vicenza Calcio (football), co-sponsorship of Rugby Rovigo, main sponsorship of the youth sector of Reggiana Pallacanestro (basketball), of Women Volley Vicenza, “Maratonina di Udine”, the running competition StraVicenza, and the summer “City Camp” of Vicenza Calcio). Lastly, the Bank supports education and research through scholarships and the collaboration with the new University of Vicenza, as well as through interventions in support of local economies, with particular attention to small and medium industrial, craft and commercial enterprises.

    Link: www.popolarevicenza.it




  • BANCO POPOLARE

    Acronym: BP. Banco Popolare is a cooperative, whose headquarter is in Verona. It was established on 1 July 2007, at the same time when the group Gruppo Banco Popolare was constituted as the result of the merger of Gruppo Banca Popolare Italiana … Banca Popolare di Lodi with Gruppo Banca Popolare di Verona e Novara, and it assumed the role of Leader Bank.
    The historical background of Banco Popolare coincides with that of the main banks composing it: the common values are mutual aid, the promotion of social solidarity, a sense of responsibility towards local economies, and the safeguard of economic entrepreneurial freedom. The main banks belonging to the Group originated in the 19th century, and they constitute to a large extent the original core of cooperative banks in Italy, whose key values they have kept alive until today.

    Fig. 1 - Dates of establishment of Gruppo Banco Popolare's member banks

    In particular, Banca Popolare di Verona … Banco S. Geminiano e S. Prospero (acronym: BPV) was founded with the name of Banca Mutua Popolare di Verona in 1867, the eighth Italian cooperative bank according to founding date, and changed its name into Banca Popolare di Verona in 1977. Banca Popolare di Lodi (acronym: BPL and Bipielle) was the first cooperative bank to be founded in Italy, on 28 March 1864. Banca Popolare di Novara (acronym: BPN) was established by means of royal decree on 17 September 1871 as a joint-stock cooperative on the initiative of the city’s politicians and entrepreneurs. It soon increased the number of branches, first in the region and then in the regions next to it, also by taking over small local banks. Credito Bergamasco was founded in Bergamo in 1891 as a cooperative bank with the name of Piccolo Credito Bergamasco.
    During the 20th century, especially after WW2, Banca Popolare di Verona, Banco S. Geminiano e S. Prospero, Banca Popolare di Novara, Banca Popolare di Lodi, Credito Bergamasco and the other banks that are now part of Gruppo Banco Popolare, became deep-rooted in their territories and promoted paths of growth for the local economies and communities. The constitution of Banco Popolare represents in the same way a further contribution towards the economic, as well as social and cultural development of the people and communities that are involved in the activities of the group.
    In March 2007, the Company meetings of Banco Popolare di Verona, Banco Popolare di Novara and of Banca Popolare Italiana …Banca Popolare di Lodi approved the constitution of Banco Popolare. The governance of the group was organised according to a ‘dualistic’ model, therefore the Supervisory Board and the Management Board, together with the Company meeting, represent the top of the corporate bodies. The operation, that is to say the merger of the two pre-existing groups, allowed the creation of a new banking body with a cooperative nature and of great importance both at a national and European level. It ranks among the first cooperative banks in Italy and its presence is concentrated in the richest and most industrialised areas of the country, but it is also strong in central Italy, and remarkably present in the Southern regions. Banco Popolare can also boast a widespread presence in the territory (over 2,000 branches) and a broad costumer base, composed mainly of private individuals and small and medium enterprises.
    The merger project, based on the coherence between Gruppo BPI’s industrial plan “Banca delle Piazze” and Gruppo BPVN’s strategic plan, played on the development of the traditional core business, by enhancing the geographic complementarity -with strong territorial roots- of the distributive networks and the excellence of the factories, as well as by allowing the realisation of important synergies.
    The attention towards the communities and local territories is integrated by a good presence of the Group on foreign markets, so as to provide support and assistance to client companies that are export-oriented.

    Link: www.bancopopolare.it

    Editor: Banco Popolare October 2010

  • BANK FOR INTERNATIONAL SETTLEMENTS - BIS

    The Bank for International Settlements (BIS) is an international organisation that fosters international monetary and financial cooperation and serves as a bank for central banks. The BIS fulfils this mandate by acting as:
    - a forum to promote discussion and policy analysis among central banks and within the international financial community;
    - a centre for economic and monetary research;
    - a prime counterparty for central banks in their financial transactions;
    - an agent or trustee in connection with international financial operations.
    The head office is in Basel, Switzerland and there are two representative offices: in the Hong Kong Special Administrative Region of the People's Republic of China and in Mexico City.
    Established on 17 May 1930, the BIS is the world's oldest international financial organisation.
    As its customers are central banks and international organisations, the BIS does not accept deposits from, or provide financial services to, private individuals or corporate entities.

    Governance structures
    The governance of the Bank is determined by its Statutes, which were last revised in June 2005, following a review of the governance of the Bank by three leading independent legal experts.
    The three most important decision-making bodies within the Bank are:
    the General Meeting of member central banks
    the Board of Directors
    the Management of the Bank
    Decisions taken at each of these levels concern the running of the Bank and as such they are mainly of an administrative and financial nature, related to its banking operations, the policies governing internal management of the BIS and the allocation of budgetary resources to the different business areas.
    The Bank's administrative and budgetary rules apply to the committees hosted by the BIS. Other aspects of the committees' governance are the responsibility of the body to which each committee reports.

    General Meetings
    Currently, the BIS has 56 member central banks, all of which are entitled to be represented and vote in the General Meetings. Voting power is proportional to the number of BIS shares issued in the country of each member represented at the meeting.
    At the Annual General Meeting, key decisions by member central banks focus on distribution of the dividend and profit, approval of the annual report and the accounts of the Bank, adjustments in the allowances paid to Board members, and selection of the Bank's external auditors. The Annual General Meeting is held in late June/early July.
    Extraordinary General Meetings must be called in order to amend the Statutes of the Bank, change its equity capital or liquidate the Bank.

    Member central banks
    Members are the central banks or monetary authorities of:
    Algeria, Argentina, Australia, Austria, Belgium, Bosnia and Herzegovina, Brazil, Bulgaria, Canada, Chile, China, Croatia, the Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hong Kong SAR, Hungary, Iceland, India, Indonesia, Ireland, Israel, Italy, Japan, Korea, Latvia, Lithuania, Macedonia (FYR), Malaysia, Mexico, the Netherlands, New Zealand, Norway, the Philippines, Poland, Portugal, Romania, Russia, Saudi Arabia, Serbia, Singapore, Slovakia, Slovenia, South Africa, Spain, Sweden, Switzerland, Thailand, Turkey, the United Kingdom and the United States, plus the European Central Bank.

    A meeting place for central banks
    Currently, more than 5,000 senior executives and officials from central banks and supervisory agencies participate in meetings organised by the BIS every year.
    The most important meetings held at the BIS are the regular meetings of Governors and senior officials of member central banks. Held every two months in Basel, these gatherings provide an opportunity for participants to discuss the world economy and financial markets, and to exchange views on topical issues of central bank interest or concern. The main result of these meetings is an improved understanding by participants of the developments, challenges and policies affecting various countries or markets. An atmosphere of openness, frankness and informality amongst participants is critical to the success of BIS meetings.
    Other meetings of senior central bank officials focus on the conduct of monetary policy, the surveillance of international financial markets and central bank governance issues.
    In addition, the BIS organises frequent meetings of experts on monetary and financial stability issues as well as on more technical issues such as legal matters, reserve management, IT systems, internal audit and technical cooperation. Although targeted mostly at central banks, BIS meetings sometimes involve senior officials and experts from other financial market authorities, the academic community and market participants.

    Research and statistics
    The economic, monetary, financial and legal research of the BIS supports its meetings and the activities of the Basel-based committees. The BIS is also a hub for sharing statistical information amongst central banks, and for publishing statistics on global banking, securities, foreign exchange and derivatives markets.
    Research is carried out primarily by BIS staff, supplemented by visiting researchers from central banks and the academic community. From time to time, the BIS organises special meetings and conferences with central bank researchers and academics.
    This research finds its way into the Bank's regular publications, such as the Annual Report and Quarterly Review, and into its BIS Papers and Working Papers series, as well as external publications such as professional journals.

    Seminars and workshops
    Through seminars and workshops organised by its Financial Stability Institute (FSI), the BIS promotes dissemination of the work undertaken by the supervisory community. Not only does the FSI familiarise financial sector supervisors with the recommendations of the Basel Committee on Banking Supervision worldwide, but it also provides practical training for senior participants.
    The cooperation with regional central bank groupings also helps to make information about BIS activities more widely known. This cooperation takes the form of participation in meetings by regional central bank groups and the organisation of ad hoc joint meetings or workshops.

    Banking services for central banks
    The BIS offers a wide range of financial services to assist central banks and other official monetary institutions in the management of their foreign reserves. Some 140 customers, including various international financial institutions, currently make use of these services. BIS financial services are provided out of two linked trading rooms: one at its Basel head office and one at its office in Hong Kong SAR.

    The establishment of the BIS
    The Bank for International Settlements was established in 1930. It is the world's oldest international financial institution and remains the principal centre for international central bank cooperation.
    The BIS was established in the context of the Young Plan (1930), which dealt with the issue of the reparation payments imposed on Germany by the Treaty of Versailles following the First World War. The new bank was to take over the functions previously performed by the Agent General for Reparations in Berlin: collection, administration and distribution of the annuities payable as reparations. The Bank's name is derived from this original role. The BIS was also created to act as a trustee for the Dawes and Young Loans (international loans issued to finance reparations) and to promote central bank cooperation in general.
    The reparations issue quickly faded, focusing the Bank's activities entirely on cooperation among central banks and, increasingly, other agencies in pursuit of monetary and financial stability.

    The changing role of the BIS
    Since 1930, central bank cooperation at the BIS has taken place through the regular meetings in Basel of central bank Governors and experts from central banks and other agencies. In support of this cooperation, the Bank has developed its own research in financial and monetary economics and it makes an important contribution to the collection, compilation and dissemination of economic and financial statistics.
    In the monetary policy field, cooperation at the BIS in the immediate aftermath of the Second World War and until the early 1970s focused on implementing and defending the Bretton Woods system. In the 1970s and 1980s, the focus was on managing cross-border capital flows following the oil crises and the international debt crisis. The 1970s crisis also brought the issue of regulatory supervision of internationally active banks to the fore, resulting in the 1988 Basel Capital Accord and its "Basel II " revision of 2001-06. More recently, the issue of financial stability in the wake of economic integration and globalisation, as highlighted by the 1997 Asian crisis, has received a lot of attention.
    Apart from fostering monetary policy cooperation, the BIS has always performed "traditional" banking functions for the central bank community (e.g. gold and foreign exchange transactions), as well as trustee and agency functions. The BIS was the agent for the European Payments Union (EPU, 1950-58), helping the European currencies restore convertibility after the Second World War. Similarly, the BIS has acted as the agent for various European exchange rate arrangements, including the European Monetary System (EMS, 1979-94), which preceded the move to a single currency.
    Finally, the BIS has also provided or organised emergency financing to support the international monetary system when needed. During the 1931-33 financial crisis, the BIS organised support credits for both the Austrian and German central banks. In the 1960s, the BIS arranged special support credits for the French franc (1968), and two so-called Group Arrangements (1966 and 1968) to support the sterling. More recently, the BIS has provided finance in the context of IMF-led stabilisation programmes (eg for Mexico in 1982 and Brazil in 1998).

    BIS archives
    The BIS archives are open to the public. Under the BIS open archive rules, all records relating to the Bank's business and operational activities which are over 30 years old are available for consultation, with the exception of a limited number of records.

    © 2011 ASSONEBB

  • BANK OF CANADA - BOC. FEATURES OF THE CANADA'S CENTRAL BANK (ENCYCLOPEDIA)

    Abstract

    The Bank of Canada (BOC) is a financial institution that serves as Canada's primary central bank. The “Bank of Canada Act” of 1934 founded the institution as a privately owned corporation but in 1938, the bank became a Crown corporation belonging to the monarch in right of Canada. Unlike many central banks, the BOC is not a commercial bank and does not offer public bank services. It is the only issuer of banknotes and holding a monopoly on the printing and issuing of the Canadian banknotes, the central bank directly influences the value of the country’s currency. Furthermore, its responsibilities focus on the goals of low, stable and predictable inflation; a safe and secure currency; a stable and efficient financial system in Canada and internationally; and effective and efficient funds-management services for the Government of Canada. Recently the BOC has made some important changes in the way it implements monetary policy like explicit target of inflation (1-3%) or increasing transparency and reducing market uncertainty. These measures, together with other financial factors, have allowed Canada to reduce the issues of the global economic crisis of 2008.

    A Special Type of Crown Corporation

    Before to 1934, Canada did not have a central bank and for long time the political debates focused on the issue of private or public ownership for central banking system. At the heart of the issue was the nature of the BOC’s relationship with the federal government.

    Legislators were concerned that the BOC remain free from political interference, while at the same time remaining responsive to the financial and economic priorities set out by the federal Finance Department. The issue of BOC independence is still a hot topic today.

    On March 11, 1935, the central bank began operations. Initially the bank was founded as a privately owned corporation in order to ensure it was free from political influence. Soon after the bank opened, a new Government introduced an amendment to the “Bank of Canada Act” to nationalize the institution. The new Government nationalized the bank in 1938, buying all of its shares from the private banks that were its original owners. In 1938, it became a special type of Crown corporation (Crown corporations are peculiar Canadian hybrid entities), fully owned by the Government but the bank is not a Government Department as it performs its activities at arm's-length from the Government. Shares are directly held by the Minister of Finance on behalf of Her Majesty in right of Canada which are registered by the bank in the name of the Minister in the books of the bank at Ottawa, and the bank's earnings go into the federal treasury. The Bank of Canada also has a governance framework that reflects its unique mandate and role.

    Core Functions

    The Bank of Canada has a primary mandate of keeping inflation within the 1-3% range, which it has been able to achieve. The BOC administers the nation’s currency, protects its value, and acts as the government's and chartered banks' official banker but the Bank of Canada's most important function is to set monetary policies that will promote a healthy economy. This is accomplished primarily through taking steps to raise and lower interest rates.

    According to the preamble in the “Bank of Canada Act”, the Bank's mandate is to:

    - Regulate credit and currency

    - Control and protect the external value of the national monetary unit

    - Use monetary action to mitigate fluctuations in the general level of production, trade prices, and employment.

    The Bank of Canada constantly maintains liquidity of financial institutions that are a part of the financial system. As a lender of last resort, the BOC provides immediate liquidity to institutions of the system accredited to it, if they encounter problems of the kind.

    The bank closely interacts with financial markets through its presence in the foreign exchange markets. It realizes Government securities trading and management, influences interest rates by establishing an overnight rate.

    Furthermore, the BOC is a fiscal agent of the Canada Government. The role of the fiscal agent is connected with certain responsibilities that can be compared to public funds management.

    The bank manages tax administration accounts used for collecting and spending money by the Government. It guarantees that these accounts have enough funds for day-to-day needs, and that the surplus will be invested into deposits.

    Also, the bank manages Government exchange reserves. These reserves provide major liquidity to the Government assets and help to create proper conditions to establish the Canadian dollar exchange rate in the forex market.

    The BOC is the only bank responsible for creating and distributing the official Canadian currency, the Canadian dollar.

    The “Bank of Canada Act”, which defines the bank's functions, has been amended many times since 1934. But the preamble to the Act has not changed. The Bank still exists "to regulate credit and currency in the best interests of the economic life of the nation."

    Management of the Bank

    The mandate of the BOC is spelled out in the “Bank of Canada Act”, under this Act, management of the bank is assigned to Board of Directors that appoints the Governor and Senior Deputy Governor.

    The Governor is Chair of the Board of Directors and with the Deputy Governor shall each be appointed for a term of seven years during good behavior, are eligible for re-appointment on the expiration of their terms of office.

    The Board is composed of the Governor, the Senior Deputy Governor and 12 independent directors appointed to three-year renewable terms by the Governor in Council (the Cabinet). The Deputy Minister of Finance is an ex officio non-voting member of the Board. The Board of Directors provides general oversight of the management and administration of the bank with respect to strategic planning, financial and accounting matters, risk management, human resources, and other internal policies.

    Furthermore, the bank shall be under the management of Governing Council. The Governing Council is the policy-making body of the Bank. It consists of the Governor, Senior Deputy Governor, and four Deputy Governors. It is responsible for monetary policy, decisions aimed at promoting a sound and stable financial system, and the strategic direction of the bank. The Council arrives at its decisions about the rate by consensus, rather than by individual votes as is the case at some other central banks.

    Although the Bank enjoys substantial independence, the “Bank of Canada Act” gives the finance minister the right to issue a formal, written policy directive to the Bank of Canada if, after consultation, disagreement on policy persists.

    The Bank of Canada is required to submit each year its audited financial statements accompanied by a report by the Governor to the Minister of Finance. The Annual Report is presented to Parliament by the Minister and a copy is published in the Canada Gazette.

    Tab. 1: Organization Chart of BOC

    Source: BOC

    Relationship with the Government

    The Bank of Canada’s relationship with the Government consists of both formal and informal mechanisms.

    Formal Instruments:

    - The outside Board of Directors appoints the Bank Governor and the Senior Deputy Governor, with the government's approval.

    - The Finance Minister appoints a new director or reappoints a director when his/her term of office expires.

    - The Deputy Finance Minister sits on the Governing Council and the Board of Directors, but does not vote.

    - The Bank of Canada submits an annual report to the Department of Finance. The Governor must be available for questioning on the report by the House of Commons Standing Committee on Finance.

    Informal Instruments:

    - The “Bank of Canada Act” instructs the Governor to “consult regularly on monetary policy and on its relation to general monetary policy.” In practice this means that the Governor of the Bank meets weekly with the Finance Minister.

    - Together with the Department of Finance, the Bank of Canada participates in the Financial Institutions Supervisory Committee (FISC) that meets regularly to share information, coordinate actions and advise the federal government on financial system issues.

    References

    BANK OF CANADA ACT, http://laws-lois.justice.gc.ca/eng/acts/B-2/page-1.html

    BANK OF CANADA (2012) Annual report

    BANK OF CANADA website, www.bankofcanada.ca

    INTERNATIONAL MONETARY FUND (1998) The Bank of Canada's Monetary Policy Framework - Have Recent Changes Enhanced Central Bank Credibility?, FMI Working Paper

    JACKSON K. J. (2013) Financial Market Supervision: Canada’s Perspective, Congressional Research Service

    WATTS G. S. - RYMES T. K. (1993) Bank of Canada: Origins and Early History, Carleton University Press

    Editor: Giovanni AVERSA

  • BANK OF CHINA (BOC)

    The Bank of China (BOC) was formally established in 1912. It’s part of "Big Four" with Agricultural Bank of China (ABC), China Construction Bank (CCB) and Industrial and Commercial Bank of China (ICBC). From its founding until 1942 acts as the Chinese central bank. Later, with the establishment of the People’s Bank of China (PBOC), the BOC has been transformed into a commercial bank. After the founding of People’s Republic of China (PRC), the Bank became responsible for managing China's foreign exchange operations and provided support to nation's foreign trade development.

    In 2004, the BOC was recapitalized in order to strengthen its competitiveness for integration into the international market as a result of accession to the World Trade Organization (WTO). As China's most international bank, the BOC provides a comprehensive range of financial services to customers across the Chinese mainland, Hong Kong, Macau, Taiwan and 36 overseas countries. The Bank's core business is commercial banking, including corporate banking, personal banking and financial markets services.


    Editor: Giovanni AVERSA

  • BANK OF ITALY

    The Bank of Italy is the central bank of the Republic of Italy and part of the European System of Central Banks (ESCB) and the Eurosystem. It is a public-law institution and pursues aims of general interest in monetary and financial matters: price stability, the primary objective of the Eurosystem under the Treaty establishing the European Community (the EC Treaty); the stability and efficiency of the financial system, thus implementing the principle of the protection of savings embodied in the Constitution (Article 47(1) “The Republic encourages and protects saving in all its forms, it regulates, coordinates and controls the provision of credit”); and the other duties entrusted to it by Italian law.
    In performing its tasks, the Bank operates autonomously and independently, in compliance with the principle of transparency and the applicable provisions of Community and Italian law.
    Consistently with the public nature of its functions and aware of the importance of its tasks and responsibilities, the Bank prepares information and data for maximum dissemination.

    Functions and Governance
    The Bank of Italy’s functional and governance arrangements are based on a variety of different legal sources: Community law, which regulates the activity of the European System of Central Banks (ESCB), the provisions of banking and financial law concerning its supervisory powers, other provisions governing its relations with the Ministry for the Economy and Finance and other authorities, and its Statute.
    Within the Eurosystem, of which it is an integral part, the Bank contributes to monetary policy decisions through the participation of the Governor in the Governing Council of the European Central Bank and of its experts in the Eurosystem committees and working groups that perform the necessary technical analysis. ?It performs these functions under Article 105 of the EC Treaty and Article 3 of the Statute of the European System of Central Banks.
    At national level, an indirect reference to the Bank’s functions can be found in the aforementioned Article 47(1) of the Constitution.The main legal sources concerning the Bank’s functions and organization are:

    ?Legislative Decree 385/1993 (the Consolidated Law on Banking);?
    Legislative Decree 58/1998 (the Consolidated Law on Finance);?
    Legislative Decree 43/1998, which adapts Italian law to the provisions of the EC Treaty on monetary policy and the European System of Central Banks;?
    Law 262/2005, containing provisions for the protection of savings and the regulation of financial markets;?
    Legislative Decree 303/2006, containing provisions coordinating the Consolidated Law on Banking and the Consolidated Law on Finance with Law 262/2005;?
    the Bank’s new Statute, approved by a Decree of the President of the Republic dated 12 December 2006.


    Organization
    The Bank's organizational structure reflects the three levels at which it operates: international, national and local. The Head Office draws up and implements the strategic, management and operational policies.
    At the national level, the Bank is organized in branches located in the regional capitals and in some provincial capitals. Their activities relate to the State treasury service, banking and financial supervision, banknote circulation, payment system services and economic analysis and statistical surveys at the local level.
    The Bank has representative offices in London, New York and Tokyo; a number of officers are seconded as financial attachés to some Italian embassies and consulates.
    The Bank of Italy is currently undergoing a general reorganization designed to enhance the quality, economy and efficiency of the services it provides to the country, in line with the changing economic and financial landscape and with the opportunities offered by technological innovation. This reorganization, involving the Head Office, the branches, and the representative offices abroad, began in 2007 and is now nearing completion.

    Members of the Directorate (Governing Board)
    The Directorate (Governing Board) is a collegial body, subject to Articles 21, 22 and 23 of the Statute, that includes the Governor, the Director General and the three Deputy Directors General, and that is authorized to adopt measures of external significance regarding the exercise of the public functions entrusted by law to the Bank in pursuit of its aims, other than decisions falling under the authority of the ESCB.
    Resolutions are passed by an absolute majority of those present; where the numbers in a division are equal, the Governor has the casting vote. Minutes are kept of meetings.
    Currently, the Governing Board is composed of Ignazio Visco, Governor; Fabrizio Saccomanni, Director General; Giovanni Carosio, Anna Maria Tarantola and Salvatore Rossi, Deputy Directors General.

    History
    Origins
    After national unification in 1861, Italy remained economically behind the leading European countries. Per capita GDP was less than half that of the UK and a little over half of the French figure. The banking system was composed of small individual banks, a small number of public institutions and a few banks of issue; banknote circulation was sparse.?The banks of issue had been established in the pre-unity states during the first half of the nineteenth century. United Italy had a single currency (the Italian lira, created by the Pepoli Law of 1862) but fragmented banknote circulation, because almost all of the banks of issue operating in the old states had maintained their right to issue their own banknotes in the new Kingdom of Italy: Banca Nazionale nel Regno d’Italia (which resulted from the merger of Banca di Genova and Banca di Torino) in the North; Banca Nazionale Toscana in the Centre, and flanked in 1863 by Banca Toscana di credito per le industrie e il Commercio; Banco di Napoli and Banco di Sicilia in the South. The number of banks of issue rose to six when, after the annexation of Rome in 1870, the Bank of the Papal States became Banca Romana. All of these banks issued lira banknotes, convertible into gold, and were in competition with one another. Two, Banco di Napoli and Banco di Sicilia, were public, the others private; all were supervised by the State. The end of convertibility, in 1866, caused banknote circulation to surpass metallic currency.?The first law of the newly unified State on banknote issuance was enacted in 1874. This law specifically identified the six institutions authorized to issue banknotes and thereby created a legalized and regulated oligopoly. That is, a single bank of issue was not established, largely because of the strength of regional interests that did not want to deny themselves a local issuing bank. ?As bank deposits were not common, the principal source of funds for lending was the issuance of banknotes. In effect, by accepting these banknotes the public provided credit to the issuing banks, which in turn provided credit to their clients. It was only in the 1870s that non-issuing banks (i.e. banks analogous to those we know today) began to be founded, such as Credito Mobiliare and Banca Generale, with nationwide coverage and international contacts. In this context, the banks of issue retained an important role. Mainly by discounting bills, they made an essential contribution to the financing of production and investment, helped to combat usury and favoured thoroughgoing transformation of Italy into a monetary economy.?The return to convertibility, decreed in 1881 and put into practice in 1883, marked the beginning of a short-lived illusion; euphoria caused economic overheating, to which the appropriate policy response was not forthcoming. By 1887, de facto, the lira was again non-convertible. The building boom triggered by the new national capital, Rome, and fuelled partly by foreign investment, also involved the banks of issue. Overexpansion brought a speculative bubble, followed by crisis. The banking crisis of the early 1890s, coupled with a foreign exchange crisis, took on a scandalous political and judicial dimension in December 1892, when the unsustainable situation of the banks of issue was revealed, and especially the grave irregularities committed by Banca Romana, until then kept secret by the government.? In an extremely difficult situation, and after a series of bitter political battles, the country found the strength to respond. Sidney Sonnino’s idea of radically refounding the system of banknote issue was discarded, and the line taken by Prime Minister Giovanni Giolitti prevailed. The law of 1893 introduced new regulations for issuing banknotes and led to the foundation of the Bank of Italy, with the merger of three existing institutions, Banca Nazionale and the two Tuscan banks; it was headed by Director General Giacomo Grillo. Banca Romana was liquidated, while the Southern banks of issue continued in business.

    The Bank of Italy from its inception to the 1936 Banking Law
    The 1893 Banking Law (Law 449 of 10 August 1893) instituting the Bank of Italy was fundamental. It redefined banknote circulation to base it on gold (more precisely: 40 per cent of notes issued had to be covered by gold reserves) and placed an absolute limit on issues. It created the conditions for restoring the health of the issuing banks. It began the transition towards a single bank of issue and it established rules whereby the public interest took precedence over the profits of private shareholders (for example: government approval for the appointment of the head of the Bank of Italy - the Director General - and for changes to the discount rate).? During these years, Giuseppe Marchiori, Director General from 1894 to 1900, steadily emarginated private shareholder interests and affirmed the Bank’s pursuit of public purposes. Yet, the Bank remained a private company, issuing banknotes under concession. ?A very significant role in the development of the Bank was played by Bonaldo Stringher, who was appointed Director General in 1900. In the Giolitti era, the Bank was able to reconcile (given a favourable economic climate) financial and exchange rate stability with support to economic activity. In 1902, the old parity between the lira and gold was reached; from then on Italy behaved as if it adhered to the gold standard, but, having learned from previous crises, did not officially declare the convertibility of the currency. In 1906, the Bank of Italy conducted the fair conversion of pre-existing irredeemable government bonds. Through this success, the Bank confirmed its role as banker and hence as advisor to the government, in addition to the role of treasurer. ?In parallel with the economic revival and industrialization, the credit system had changed: during the crisis of 1893-94 - which saw the failure of the largest two industrial credit banks - a new system evolved in which the bulk of credit business began to pass from the three surviving banks of issue (Banca d’Italia, Banco di Napoli and Banco di Sicilia) to the large mixed banks recently founded (Banco di Roma, Banca Commerciale Italiana and Credito Italiano). ?In 1907, the Bank of Italy intervened effectively to prevent a serious financial crisis, reinforcing its role as lender of last resort and consolidating its reputation. To facilitate this work, the system of monetary circulation was made more flexible with a law passed at the end of the year. The need for supervision of the banking system began to be felt. ?On the eve of World War I, the Bank of Italy held a central position within the national financial system, thanks to the importance of its credit for the economy, its action to guarantee financial stability, its consolidation of the gold reserve and its assistance to the Treasury in public debt management.
    During World War I, the Bank assisted the Treasury massively: with direct credit, with help in arranging domestic war loans and with the management of foreign financial operations. The link between the lira and gold was abandoned and the state monopoly of foreign exchange was instituted.?With war’s end, problems of reconversion to civilian uses threw many sectors of industry into crisis, and with them the credit institutions that had financed them, to the point of causing major banking failures. The Bank of Italy, with government approval, intervened with massive salvage operations. The foreign exchange monopoly was ended, but in the new circumstances a return to monetary normalcy was impossible. The existing instruments for the control of the money supply in being proved to be totally ineffective. Within the country and at international level, the question under debate was how to return to a system based upon gold. Italy took a conservative stance, in favour of the classic gold standard. ?In a slightly inflationary situation, the Fascist government revalued the lira in 1926, thereby deflating the economy. As part of the monetary stabilization plan and the return to the gold standard (effected by the Bank of Italy notwithstanding Stringher’s doubts regarding the strong risk of deflation), within three years important reforms were made. The Bank of Italy was given the monopoly on banknote issue and assigned to manage the clearing houses, central nodes of a modern payment system. A law was enacted to protect savings. Banks’ new special obligations were established, including a minimum capital requirement. The Bank of Italy was given new powers of control, the kernel being supervision of the banking system. The reforms were completed in 1927-28 with the fixing of a new gold parity for the lira and the re-establishment of convertibility into gold or convertible foreign currency (gold exchange standard), the introduction of the obligation to maintain a gold or hard currency reserve of at least 40 per cent of the money in circulation, and the redefinition of relations with the Treasury.? As a result of these provisions, the Bank, abandoning its old role of “bank of issue”, became a true central bank and overseer of the credit system. The Bank’s fundamental character as a public institution was reinforced. In 1928, a new Statute was approved, creating the post of Governor at the top of the Directorate (composed of Governor, Director General and Deputy Director General). Responsibility for setting the discount rate passed from the Executive Board to the Governor, still subject to government approval.
    After Stringher’s death in 1930, the Governorship passed to Vincenzo Azzolini, who arrived from the Treasury.? At the depth of the Great Depression, the devaluation of sterling (in September 1931) and most other currencies was tantamount to a further revaluation of the lira. The deflationary effect of Italian policy was accentuated, with severe repercussions on economic activity and the financial system. The State and the central bank saved the major commercial banks from collapse, their assets swollen with ever more devalued equity holdings. The Bank of Italy found itself with severely illiquid assets, and was thus unable to conduct operations. The response was first the creation of Istituto Mobiliare Italiano (IMI) to provide medium and long-term financing and then the Institute for Industrial Reconstruction (Istituto per la Ricostruzione Industriale - IRI), which purchased equity holdings of the ailing banks and took a controlling stake in the banks themselves. In the mid-1930s, the tensions that would lead to World War II were foreshadowed in the monetary and currency sphere with the de facto termination of the convertibility of the lira and in the suspension of the gold reserve requirement (which was never to be reinstated).? In the context of preparations for war (the invasion of Ethiopia started in 1935) and under IRI, the Banking Law was drafted. The first part of the Law, which is still in force, defined the Bank of Italy as “a public law institution” and entrusted it definitively with the function of monetary issue (no longer just a concession); individual shareholdings were expropriated and equity was reserved to financial institutions of public relevance; the Bank was prohibited from discounting bills itself to non-banks, underscoring its function as banker to banks. A second part of the law (repealed almost completely in 1993) concerned credit and financial supervision, totally revamping the credit system via a separation between banking and industry and between short- and long-term credit; it determined that banking was an activity of public interest; it concentrated supervision in the Inspectorate for the defence of savings and the exercise of credit (a newly created state body), chaired by the Governor and using resources and personnel of the Bank of Italy, but directed by a ministerial committee chaired by the Prime Minister. ?Aware of the new developments in economics and the challenge posed by a world in the throes of violent change, Governor Azzolini initiated the creation of a modern research service, taking on professional economists. ?At the end of 1936, the long-awaited devaluation of the lira stimulated economic recovery and improved the balance of payments. At the same time, by a simple ministerial decree, all limits on State borrowing from the Central Bank were abolished. The autonomy of the Bank was at its nadir.

    World War II and post-war monetary stabilization
    World War II - with the country divided, combat throughout most of Italy and foreign occupation - inflicted substantial damage on the national economy. The lira fell to a thirtieth of its pre-war value (by comparison, during World War I it had fallen to one fifth of its initial value).?The Bank of Italy, like the country?s other institutions, experienced some dramatic moments. Its administration was split in two. Separate commissioners were installed, one in the Nazi-occupied North, in the Social Republic, and another under the Allies in the South, in the Kingdom of Italy. The appointment of Luigi Einaudi as Governor (in January 1945) laid the basis for the return to normality at war’s end.? The reconversion to a civilian economy, though difficult, did not cause instability for banks, as it had at the end of World War I, because, thanks to the 1936 reform, they did not have substantial non-liquid assets. But the situation of the lira was much more worrying and the end of 1946 saw the re-emergence of runaway inflation.? The restoration of monetary stability, achieved between 1945 and 1948 with a sound, consistent plan, had four essential points. The first was halting inflation. In the summer of 1947, the compulsory reserve mechanism was refined and targeted to the needs of monetary control. The power to vary the reserve ratio was assigned to a new body, the Interministerial Committee for Credit and Savings (Comitato Interministeriale per il Credito e il Risparmio - CICR), chaired by the Treasury Minister. The reform, clearly specifying the determination of the monetary authorities to put an end to inflation, affected expectations and cut off the rise in prices. The second point was the re-establishment of a limit to the monetary financing of the State: in May 1948 the overdraft on the Treasury’s current account at the central bank was limited to 15 per cent of budgeted State spending. The third point was joining the international financial community: in October 1946 Italy was admitted to the Bretton Woods institutions. The liberalization of trade and foreign exchange began, and after the devaluation of November 1947 the two-tier foreign exchange market disappeared. The Italian Foreign Exchange Office was formed to handle foreign currency transactions. Italy would later become part of the European Payments Union, created in 1950. The fourth point was the reorganization of banking supervision: after the abolition of the banking inspectorate, created in 1936, the supervisory function was assigned to the Bank of Italy; political responsibility was entrusted to the CICR, whose meetings were attended by the Governor as head of its technical arm.?The protection of savings was enshrined in the new constitution of 1948, Article 47. The strengthening of the lira, to which Director General Donato Menichella contributed greatly, laid the foundations for the non-inflationary growth of the successive period.? From the aftermath of the war to the early 1950s, the actions of the Bank of Italy were essential to attracting and managing the international aid (Interim Aid, Marshall Plan and World Bank) that served to bring Italy out of emergency and to kick-start reconstruction.

    From the 1950s to Maastricht
    For Italy, the 1950s was a time of sustained economic development in a context of monetary stability. The choice of international opening, which introduced salutary competitive stimulus into the economy, was consolidated by membership in the European Economic Community (1957) and the introduction (1958) of convertibility of the lira into other currencies for non-residents (external convertibility).? The Bank, headed by Donato Menichella (who had succeeded Einaudi in 1948, when the latter became President of the Republic), aimed to maintain the long-term conditions for investment. It took direct interest in problems of economic development and of Southern Italy without ever abandoning monetary control. The instruments of monetary policy consisted of discount rates and central bank advances - which, however, held stable for eight years from 1950 to 1958 - and control of credit, in part through moral suasion. Periodically, excess liquidity was mopped up via bond issues.? Banking supervision was directed primarily to avoiding the repetition of episodes of asset illiquidity. An effort was made to align the structure of the banking system with industry: hence the encouragement of smaller banks, presumed to be more closely tied to small businesses (localism). In 1960, Guido Carli was named Governor of the Bank. In the years that followed, the economic structure of the country was gradually transformed. More and more the role of the credit system was to reallocate resources between consumption and investment and between the public and private sectors. From the mid-1960s onwards, monetary policy was oriented to stabilizing security prices, to facilitate the placement of issues and thereby encourage investment.?The Research Department perfected its analytical instruments, most notably with the construction of the Bank of Italy?s econometric model and the realization of the “financial accounts”.? As regards the credit system, for the first time since the 1930s banking mergers were encouraged, in order to enhance technical efficiency, but definitely excluding a return to universal banking. The Central Credit Register was established.
    The 1960s ended in the midst of serious economic difficulties. The end of the Bretton Woods System (August 1971), the switch to floating exchange rates and the sharp rise in oil prices ushered in a long period in which two evils previously considered antitheses coexisted: stagnation and inflation. ?Inflation in Italy was notably higher than the average for the other industrial countries. Between 1973 and 1984, the rate was never below 10 per cent. In addition to world price rises, Italian inflation had major domestic causes: severe labour market tensions, an increase in public expenditure without a corresponding increase in revenue and lack of competition. An important role was also played by the removal of the discipline of fixed exchange rates. ?The policy of stabilizing securities prices became too onerous and was abandoned. In order to sustain investment and at the same time keep a check on domestic demand, while containing rises in interest rates, in 1973 administrative credit control measures (a ceiling on bank lending and portfolio constraints) and foreign exchange controls were introduced. Monetary policy in Italy, as in the other industrial countries, tended to be restrictive and to focus on explicitly announced medium-term target aggregates (total domestic credit).? In 1975, Carli left the governorship to be replaced by Paolo Baffi, who had been Director General since 1960. During the foreign exchange crisis of 1976, the Bank made the lending ceiling more constraining and tightened foreign exchange controls to make the restrictive measures more effective.?The Bank repeatedly underscored the costs and limitations of this set of policy tools. Action was begun to enhance the ability to conduct monetary policy through the market, especially via the buying and selling of securities (open market operations). To this end, in 1975, the first steps were taken to create a true money market, with procedural changes in the issue of Treasury bills and a reform of compulsory reserves.? In December 1978, Italy joined the European Monetary System, negotiating a broad fluctuation band for the lira of 6 per cent above or below the central rate, while the other participating countries had a narrower band of plus or minus 2.25 per cent, because Italy’s inflation differential, though narrower, was still substantial. ?Supervisory action sought to encourage the capital strengthening of banks, to improve their by-laws and organization, and to broaden the scope for competition. In the second part of the decade, on-site inspections became more extensive and analytical techniques were perfected. To meet the growing need for international supervisory cooperation, the Basel Agreement was signed in 1983. ?In 1979, the leadership of the Bank of Italy was struck down by a judicial initiative regarding banking supervision. Although the action subsequently proved to have been completely groundless, Governor Baffi was incriminated and Deputy Director General Mario Sarcinelli arrested. The events were a difficult test for the Bank. Thanks to the general demonstration of solidarity on the part of qualified opinion, both Italian and international, and the independence and prestige of the Bank and its staff, the institution weathered the crisis. ?Paolo Baffi chose to resign in October 1979 and was replaced by Carlo Azeglio Ciampi, who had been appointed Director General in 1978 following a long career in the Bank.
    The second oil shock of 1979-80 again caused prices to rise, but three factors helped foster a process of disinflation and the restructuring of industry. In 1979, the European Monetary System began operating, accompanied by an unaccommodating monetary policy stance, which reinforced the real exchange rate of the lira. In 1981, the Bank of Italy gained full autonomy to decide whether or not to purchase Treasury bills not taken up by brokers at auctions (the so-called “divorce”). Wage moderation was produced by the surge in unemployment and the weakening of wage indexation. Real interest rates returned to positive values. ?The drive begun in the second half of the 1970s to enhance the effectiveness of monetary control through market instruments was continued. At last, with the introduction of an efficient auction system for issuing Treasury bills and a functioning interbank deposit market, a true money market came into being. In 1987, the inflation rate reached a low of 4.7 per cent and in 1990 the lira moved into the “narrow band” of the EMS. However, inflation turned up again to 6.5 per cent in 1990, owing among other things to unresolved structural problems. The deficit of the current account of the balance of payments became worrying and investments declined. The rehabilitation of the Italian economy, that is, was still partial and fragile.?The Single European Act in February 1986 laid down the stages of the process for the removal of the remaining trade barriers dividing EU national markets. Six years later, in February 1992, the Treaty of Maastricht was signed, forming the basis for the single currency and the European System of Central Banks. In 1990, the completion of liberalization had brought an end to foreign exchange controls, which had been in place in Italy, in one form or another since 1934. This facilitated the international integration of the Italian economy and the financial system. ?In the 1980s, the supervision of the Bank of Italy was extended to non-bank intermediaries, albeit only for matters impinging on the stability of the financial system. The Bank began the transition from “structural” supervision (which used powers of authorization to shape the structure of system) to “prudential” supervision, based principally on general rules of conduct. In 1990, three fundamental laws were passed: one on commercial banks and groups (called the “Amato-Carli” law), one on securities business, and one on safeguarding competition. The first established a level playing field for bank operators, specifying the joint stock company as the general model for banking business, laid a basis for the privatization of banks, and regulated credit groups. The second regulated securities intermediaries and stock markets. The third introduced antitrust principles and instruments.? During the same years, the Bank of Italy set the objective of improving the integrity and efficiency of payments services. The national clearing system and the transactions on banks’ accounts at the Bank of Italy were completely computerized. The screen-based Interbank Deposit Market (Mercato Interbancario dei Depositi - MID) was launched.


    In Europe
    The Treaty of Maastricht set strict convergence parameters for countries intending to join the Economic and Monetary Union. The calendar for monetary union was fixed: a first stage of economic and institutional convergence; a second stage of regulatory and procedural harmonization to prepare for the implementation of a common monetary policy, envisaging the creation of the European Monetary Institute, the precursor to the European Central Bank, in 1994; and a third stage, beginning in 1999, for the actual launch of the single currency.?In the summer of 1992, the different economic policy stances of the United States and Germany, coupled with uncertainty regarding ratification of the Treaty of Maastricht, triggered a foreign exchange crisis that hit many countries. The lira was devalued by around 20 per cent.?In 1993, Antonio Fazio, Deputy Director General, succeeded to the governorship when Carlo Azeglio Ciampi was named Prime Minister (he was later made President of the Republic).? In Italy, the crisis prompted a vigorous reaction. First, the public finances were put in order by way of substantial cuts in expenditure and above all increases in revenue. In the summer of 1994, a monetary tightening inaugurated a period of rigour. In 1995, a year that saw another foreign exchange crisis, the discount rate reached 9 per cent. The resolute action of the Bank of Italy in these years helped to reduce inflation expectations. Price rises having been curbed, in 1996 monetary conditions were eased. Renewed confidence, both domestically and internationally, permitted a reduction in long-term interest rates and led to a drastic cut in interest payments on the public debt; so monetary policy contributed significantly to public financial adjustment. On the strength of these efforts, Italy was in the first wave of countries to adopt the single European currency.? During the 1990s, there was also a process of institutional convergence. In line with the requirements of the Treaty of Maastricht, the independence of central banks was reinforced. In Italy, this was done in a series of steps. At the beginning of 1992, the Bank of Italy was given fully independent power to set official interest rates. In the autumn, a law prohibited the State from financing itself by current account overdrafts with the Bank. The Bank of Italy has not participated in government securities auctions since 1994.?The transposition of the Second Banking Directive (1992) into Italian law set the fundamental rules for the financial sector. Banking specialization, which had characterized the credit system put together in 1936, was abolished and universal banks became possible. The series of measures taken over the years, such as those to encourage savers shift to investment in shares, supplementary pension plans and managed assets, substantially reformed the regulatory framework for banking and finance. All this was codified in the Consolidated Law on Banking of 1993 (Testo unico bancario) and the Consolidated Law on Finance of 1998 (Testo unico dell'intermediazione finanziaria). The 1993 law also made the Bank of Italy responsible for the smooth running of the payment system.? Law 262 of 28 December 2005 on the protection of savings and the regulation of financial markets also modified the organization and institutional structure of the Bank of Italy. Governor Antonio Fazio resigned in the same month. ?On 31 May 2006, Mario Draghi, who had been appointed Governor on 29 December 2005, presented his first Concluding Remarks to the General Meeting of Shareholders. The Governor noted the complexity of the field in which every modern central bank must operate. The field of operation has become even vaster for the central banks of the Eurosystem. It ranges from setting common monetary policy to payment system operations. Decisions and institutional arrangements must be adapted to the needs of an advanced, but diversified, economic area. The Bank of Italy also moves in a broader international context embracing supervisory guidelines, economic analysis and initiatives to safeguard financial stability.
    Since 1 November 2011, Mario Draghi is President of the European Central Bank and Ignazio Visco has succeeded to the governorship of the Bank of Italy.


    The Governors of the Bank of Italy

    2011 - present Ignazio Visco
    2005 - 2011 Mario Draghi
    1993 - 2005 Antonio Fazio
    1979 - 1993 Carlo Azeglio Ciampi
    1975 - 1979 Paolo Baffi
    1960 - 1975 Guido Carli
    1948 - 1960 Donato Menichella
    1945 - 1948 Luigi Einaudi
    1931 - 1944 Vincenzo Azzolini
    1928 - 1930 Bonaldo Stringher (First Governor)
    1894 - 1900 Giuseppe Marchiori (Director General)
    1894 Giacomo Grillo (Director General)

    Link: www.bancaditalia.it

  • Bankia

    Bankia is a Spanish bank with a market capitalization of 6,400 million euros (listed since July 2011 in the IBEX 35).

    Bankia works according to the universal banking business model (Hausbank), which is based on multi-brand and multi-channel management, and is focused on meeting the financial needs of more than 12 million customers in all segments: individuals, small and medium enterprises (SMEs), large corporations and public and private institutions.

    The activity is concentrated in Spain, following a business model based on regional diversification. Bankia also has an international presence in Germany, Austria, China, the United States, France, Ireland, Italy, Mexico, Poland, Portugal and the United Kingdom.

  • BANKING BOOK

    All banking activities may be included in two different categories: banking book and trading book. The banking book includes the banking activity (lending and borrowing money, holding and issuing securities and gathering deposits) aimed to generate earnings from a cash flow by selling assets occasionally, but not with a significant turnover. As opposed to the banking book, the trading book includes all the trading activities of a bank. The distinction between banking and trading book is problematic from a technical point of view and it has never been formalized. However, the definition of the limits of the banking book is extremely important for the purpose of organizational and risk management. Indeed more attention has been paid to the problem in the context of the Basel agreements in order to determine the capital requirement for banking supervision purposes.
    Editor : Bianca GIANNINI
    © 2010 ASSONEBB

  • BANKING FOR THE POOR

    Banking institutions for the poor operate primarily in developing countries with the objective of providing financial services (loans, savings, insurance) to those considered insolvent by the traditional banking sector. Generally, the services offered by the Bank involve extremely reduced monetary amounts, a few tens of Euros at the most. The idea at the heart of the institution is that, in the context of extreme poverty, very small loans are sufficient to allow a person to start up simple subsistence activities, to give an incentive to save, and ultimately to reach economic independence. Therefore, the principal aim of the Bank is to distribute micro loans at fixed costs and without any guarantee. The formula utilised to achieve such a result is based on a series of characteristic actions, such as the abolition of bureaucratic proceedings normally performed by banks, the elimination of all paper documentation … which is also dictated by the illiteracy of the majority of clients, the concession of faith-based loans without any guarantee, but instead based on virtuous mechanisms of solidarity and mutual influence and on instalment plans. In general, loans given by these institutions have a return rate of 99%.
    The first bank for the poor was founded in 1976 in Bangladesh by Muhammad Yunus (Nobel Peace Prize winner in 2006) with the name Grameen Bank (The Peasant’s Bank). The institution’s experience has recently been readapted and imported to developed countries in an attempt to assist those considered to be the economy’s "new poor".
    Bibliography
    Becchetti L., Paganetto L. (2003), Finanza Etica. Commercio Equo e Solidale, Saggine.
    Pearl D., Phillips, M. M. (2001), Grameen Bank, Which Pioneered Loans For the Poor, Has Hit a Repayment Snag, The Wall Street Journal, 27th November.
    Yunus, M. (2006), Il banchiere dei poveri, Ed. Feltrinelli.
    © 2009 ASSONEBB

  • BANKING SUPERVISION (ECB GUIDE)

    On 30 September 2014, the European Central Bank (ECB) published the "Guide to Banking Supervision", for the implementation of the single supervisory mechanism (SSM), the new system of financial supervision planned by the Banking Union.

    The SSM, established as a response to the lessons learnt in the financial crisis, is based on commonly agreed principles and standards and promotes the single rulebook approach to the prudential supervision of credit institutions in order to enhance the robustness of the euro area banking system.

    The guide describes the functioning of the single supervisory mechanism (MVU), which will be launched officially on November 4 2014, specifically explain the distribution of tasks between the ECB and national authorities, the decision-making process and operating structure of the SSM.

    The ECB is publishing this guide before it takes over its supervisory tasks (on 4 November 2014) to provide practical guidance and to support stakeholders in their preparation.

    EUROPEAN CENTRAL BANK, webpage (https://www.ecb.europa.eu/ssm/html/index.en.html)

    ECB, “Guide to banking supervision”, (https://www.ecb.europa.eu/pub/pdf/other/ssmguidebankingsupervision201409en.pdf?85e39f5cf761e11147f6e828cd4088b1)


    Editor: Giovanni AVERSA

  • BANKING UNION (ENCYCLOPEDIA)

    Abstract

    The Banking Union is a project started by the European Union in 2010 for the financial stability of the euro area. After the U.S. subprime mortgage crisis in 2007, a radical revision of the bank control systems became manifestly visible in the EU regulatory framework. The Banking Union is based on a single set of rules that includes a Single Resolution Mechanism (SRM) and a deposit guarantee system centralized, whose supervision is assigned to the European Central Bank (ECB) through a Single Supervisory Mechanism (SSM). The European Commission has therefore taken an inclusive approach and proposed a roadmap for the Banking Union with different steps, potentially open to all Member States. Since the establishment of the European System of Financial Supervision (ESFS) in 2010, the overall goal of the European legislator in the Banking Union project is to avoid new crisis in the euro zone, to break the connection between financial crises and national public debts and rebuild investor confidence in the banking sector (see Banking Union divides Europe). At the global level, the project is linked with commitments taken by the EU in the G20 and in the Basel III, as a set of measures approved on banking supervision in the financial crisis of 2007-08 with the aim of improving the existing prudential regulation of banks, the effectiveness of supervision and the ability of intermediaries to manage the risks they assume. The Union Banking is fundamentally based on three pillars: the Single Supervisory Mechanism (SSM), which entered into force in 2013 but functional from November 2014, the Single Resolution Mechanism (SRM) which will come into force in 2016 and the Single Fund Resolution (SRF) that after a transitional phase, from 1 January 2015, will be fully functional in 2025.

    European Central Bank (ECB) Supervisory Authority of Union Banking. Single Supervisory Mechanism (SSM)

    The first pillar is a banking supervision system under the control of the ECB. It is in operation since November 2014, when the ECB carried out a comprehensive assessment test of all banks, which are under its supervision. In parallel it is recruiting high quality supervisory staff and building up a new supervisory structure that integrates national supervisors before it commences its activities. The regulatory framework of the mechanism (R. 1022/2013-22/10/2013 and R.1024/2013-15/10/2013) provides direct supervisory tasks to the ECB for the European banks most significant (systemic) and decentralized supervisory tasks to the local authorities for the banks less relevant. It gives supervision powers on the ECB for the banks of the euro area: the authorisation of all banks in Europe and the coherent and consistent application of the single rulebook in the euro area, the direct supervision of banks significant banks, including all banks having assets of more than €30 billion or constituting at least 20% of their home country's GDP (around 130 banks), the monitoring of the supervision exerted by national supervisors on less significant banks The ECB may at any moment decide to directly supervise one or more of these credit institutions to ensure consistent application of high supervisory standards.

    It modifies the European System of Financial Supervision (ESFS), active since 2010.

    Banking Crisis. Single Resolution Mechanism (SRM)

    The second pillar of the Banking Union is represented by the Single Resolution Mechanism of banking crises. The Council of EU Finance Ministers reached an agreement on the general approach of these new rules on June 27 (MEMO/13/601). The report of the Committee on Economic and Monetary Affairs of the European Parliament was adopted on 20 May, opening the negotiations between the Council and the European Parliament for final adoption of the mechanism. This mechanism allows troubled banks to receive bailout funds from the central bank in order to alleviate the impact on one nation's banks crisis. The resolution would establish a €55 billion reserve fund for this purpose.

    In addition, a committee of national authorities representatives, the Single Board Resolution, which operates under the ECB, has the task of checking the execution of bailing operations or failure of a bank. This new board modifies the duties of the already functioning European Banking Authority (EBA).

    As shown in (Fig. 1) the ECB signals a bank, which requires a restructuring process in the new mechanism for banking resolution; the Single Resolution Board proposes the necessary measures; the Commission and the European Council take a final decision. Finally, the national authorities assist the Single Board Resolution on implementing the measures.

    Fig. 1 Main steps of Single Resolution Mechanism (SRM):

    In this regulation framework, the purpose of the European legislator is to create a close link between the implementation of a Single Supervision Mechanism (SSM) and the creation of common models of bank resolution crisis mechanism (Single Resolution Mechanism …SRM). In fact, the recent financial crisis has shown that the banks bailing by national governments, can have negative effects on sovereign debt. These effects can be extended, later, to the economies of other states of the monetary union, producing costs which must be supported by the taxpayers. Consequently, the existing European System of Financial Supervision (ESFS) and the subsequent ECB supervision (Single Supervisory Mechanism - SSM) could not be able to resolve these difficulties. For this reason, in order to resolve these gaps, in the purpose of the European legislator, the creation of Single Resolution Mechanism (SRM) is necessary to harmonize the policy instruments available to the European states and impose the cost of banks bailing to its shareholders and creditors and not to taxpayers.

    Who Pays for the Crisis. Single Resolution Fund (SRF)

    The third pillar of the Union Banking is closely connected to the second and is characterized by the Single Resolution Fund (SRF). In fact, it is connected to the SRM regulation and is part of the efforts pursued by the EU in the past years to adopt a number of legal acts “fundamental for the achievement of the internal market in the field of financial services and for guaranteeing the financial stability of the euro area and of the Union as a whole, as well as for the process towards deeper economic and monetary union.

    The SRF is funded by levies on banks that will initially be managed at the national level, then gradually converge in 10 years in a single European fund. The Single Resolution Fund (SRF) provides the creation of a fund worth €55 billion over ten years to refinance the banking systemin case of crisis. In addition, the costs connected with the banking crisis are paid, in order, by shareholders, bondholders and depositors with more than 100 thousand Euros. Overall, the private sector will necessarily have to cover the costs of the bank in default for an amount at least equal to 8% of the assets of the institution. Beyond this threshold, the SRF will intervene in the second round for a total of 5% of the assets of the bank. If they require additional resources the governments can intervene through the European Stability Mechanism (ESM).

    References

    COUNCIL OF THE EUROPEAN UNION, “3281st Council meeting Economic and Financial Affairs”, Press release, 17983/13

    COUNCIL REGULATION (EU) No 1024/2013 of 15 October 2013 (http://new.eur-lex.europa.eu/legal-content/IT/TXT/?uri=CELEX:32013R1024)

    EUROPEAN CENTRAL BANK, Website (http://www.ecb.europa.eu/)

    EUROPEAN COMMISSION, Website (http://ec.europa.eu/)

    MANCINI M. (2013) “Dalla vigilanza nazionale armonizzata alla Banking Union”, Quaderni di ricerca giuridica Banca d’Italia, N. 73, Settembre (http://www.bancaditalia.it/pubblicazioni/quarigi/qeg_73/qrg_73)

    VALIANTE D. (2014) “Law and Economics of banking union: new empirical evidence from the Euro area”, Forthcoming CEPS Working Document

    Editor: Giovanni AVERSA, Chiara OLDANI

    ASSONEBB 2015

  • BANKING UNION: THE DEBATE IN EUROPE

    Banking Union divides Europe

    During the technical preparatory work on the legal framework of the Euro area for the creation of a Banking Union, started since 2010, frequently unveiled divisions of members concerning this ambitious European project. The project includes the creation of Single Bank Resolution Fund (SRF) to € 55 billion, which will be used to refinance the European banks in crisis and the parallel creation of a single mechanism for the resolution of the crisis "controlled" by the European Central Bank (ECB). The difficulties of the European countries about Banking Union, concerning different issues including the single supervisory mechanism for European banks, the fund for banks in trouble and the fragmentation of decision-making processes in crisis management. In addition, the defence of national legal systems’ prerogatives and the issues of political mediation between national governments, have further slowed the process of the new banking union.

    Causes of Disagreement

    1) Resolution fund for banks. The Banking Union provides, through the Single Bank Resolution Fund (SRF), the creation of a fund to save the European banks. The realization of this fund, however, met opposition from some States, including Germany, opposed to the creation of a financial parachute with levies on national credit institutions. This issue, in fact, confirmed the division that exists between the countries such as Germany, Netherlands and Finland, which are not intended to provide government guarantees for banks and other countries such as Italy, near to the ideas of the ECB vertices, that a failure of fund may be a new crisis of confidence in the banking system. The greater distance between this views were for Germany and Italy. Their intentions were made known through two official letters sent to the President of ECOFIN, to the ECB President and to the European Commissioner about the possible costs of banks in crisis on the State of European Union.

    2) Banking Crisis: European or National control? The Banking Union involves the creation of a supervision system for European financial institutions monitored by the ECB in order to replace the current system monitored at the national level. Brussels, especially the European Commission, argues that the administration of the banks must be adequate to supervision of them. Therefore, if the ECB will monitor the leading European banks, including the failure or the rescue of them should be managed at the European level to harmonize national rules. On several occasions, Germany asked the creation of a decentralized system to administrate bank default, in order to avoid the sharing of the resources used in the rescue. Despite the pressure from the ECB and the Commission to create a solid mechanism, Berlin is trying to keep the resolution powers in the national authorities and refuses banking risks of other countries. In the purpose of the European Commission, one of the core components of Banking Union consists in the supervision and crisis management mechanism. These functions would be carried out by the ECB through a new independent Council, the Single Resolution Board, which will have the task of checking the normal execution of rescue or failure operations for banks. In contrast, for Germany the establishment of the Single Board Resolution is a conflict of interest that involves risks to the activity of monetary policy of ECB. Furthermore, according to Germany the Treaties do not allow any form of resources sharing or the constitution of new eurozone economic institutions. Instead, according to the European legislator, the proposal for a single mechanism for crisis resolution respect the Treaties. The mechanism also gives new powers for ECB in order to allow better prevention and bank crisis management in the European Union.

    3) Decision-making mechanisms: federal or confederal logic? The birth of the Banking Union and its decision-making mechanisms in the financial sector, emerges again old disagreements on institutional arrangements for EU. The two main elements of this Banking Union (Single Supervisory Mechanism-SSM and Single Resolution Mechanism -SRM) represent a compromise between federalist and confederations visions. Despite the important roles, assigned to the ECB and the Council (Single Board Resolution), the States continue to have strong discretion on the use of the common fund and strong instruments of pressure on decision-making processes of the Union Banking (formally attributed at European level).


    Editor: Giovanni AVERSA

  • BASEL COMMITTEE ON BANKING SUPERVISION

    The Basel Committee on Banking Supervision (BCBS) was established in 1974, shortly after the failure of Bankhaus Herstatt in West Germany, on the initiative of the governors of the G10 central banks. The main purpose was to enhance international cooperation between the banking supervisory authorities, especially in the light of the crisis that had affected the international banking market. The Basel committee is composed of members from Argentina, Australia, Belgium, Brazil, Canada, China, France, Germany, Hong Kong SAR, India, Indonesia, Italy, Japan, Korea, Luxembourg, Mexico, the Netherlands, Russia, Saudi Arabia, Singapore, South Africa, Spain, Sweden, Switzerland, Turkey, the United Kingdom and the United States. Member countries are represented by their central banks and by their authorities responsible for the prudential supervision of banking business. The Committee's Secretariat is based at the Bank for International Settlements in Basel, Switzerland where meetings are held regularly three or four times a year. The Committee promotes cooperation between the banking supervisory authorities by facilitating the exchange of information, by defining prudential principles and by setting supervisory standards. However, its rules are not legally enforceable, rather they are intended as a guide for convergence towards common approaches and common standards. The Committee's work is organized under four main sub-committees. The Standards Implementation Group (SIG), divided into two subgroups (Validation and Operational Risk Subgroup), is responsible for the implementation of the Basel II Framework in different jurisdictions. The Policy Development Group (PDG) supports the Committee in developing policies, on the basis of the reporting activity of seven working groups: the Risk Management and Modelling Group (RMMG), the Research Task Force (RTF), the Working Group on Liquidity, the Definition of Capital Subgroup, a Basel II Capital Monitoring Group, the Trading Book Group (TBG) and the Cross-border Bank Resolution Group. The main objective of the Accounting Task Force (ATF) is to issue international accounting and auditing standards and practices. Three working groups report to the ATF: the Conceptual Framework Issues Subgroup, the Financial Instruments Practices Subgroup, and the Audit Subgroup. Finally, the Basel Consultative Group (BCG) exchanges information also with non-member countries on Committee initiatives. Since 1975, the Committee has issued a long series of documents. In particular, in 1983 it elaborated the report entitled Principles for the supervision of banks’ foreign establishments, followed in 1993 by Minimum Standards for the supervision of international banking groups and their cross-border establishments, which set the principles for the supervision of banks’ foreign branches, subsidiaries and joint ventures. In 1997, it developed the Core Principles for Effective Banking Supervision, and in October 1999 the "Core Principles Methodology". Both documents, revised in 2006, provided a basic reference for effective banking supervision. In 1988, the Committee issued its most important document, "International convergence of capital measurement and capital standards", commonly referred to as the Basel Capital Accord that introduced international standards on capital adequacy. The 1988 capital framework was revised over time and adapted to the evolution of the banking sector. It was amended in November 1991, April 1995, and January 1996. Finally, in June 1999, the Committee proposed the definitive replacement of the 1988 capital adequacy framework that occurred in June 2004. The New Capital Framework, generally referred to as Basel 2 agreement, has been designed to provide more risk-sensitive capital requirements and a greater degree of disclosure to encourage market discipline, in response to the financial innovation occurred in the 1990s. As a result, it includes three pillars: minimum capital requirements, Supervisory Review Process and Market Discipline and Disclosures. The Committee also focused on the treatment of banks’ trading books by working jointly with the International Organization of Securities Commissions (IOSCO), and by applying the Revised Framework to certain exposures arising from trading activities. The Committee also issued guidance on other relevant supervisory issues as accounting, auditing, anti-money laundering, and various types of risk, such as credit, liquidity, market and operational risk. In the aftermath of the 2007 financial market crisis, the Basel II capital framework was further strengthened in July 2009, especially with regard to risk managements and disclosure rules (Pillar 2 and Pillar 3). In particular, since the beginning of the crisis, the Committee has worked in close collaboration with other relevant international financial bodies, and especially with the Financial Stability Forum (FSF).
    © 2010 ASSONEBB

  • BASEL III - INTERNATIONAL REGULATORY FRAMEWORK FOR BANKS

    Basel III (http://www.bis.org/bcbs/basel3.htm) is a comprehensive set of reform measures, developed by the Basel Committee on Banking Supervision (http://www.bis.org/bcbs/index.htm), to strengthen the regulation, supervision and risk management of the banking sector. These measures aim to:
    -improve the banking sector's ability to absorb shocks arising from financial and economic stress, whatever the source;
    -improve risk management and governance;
    -strengthen banks' transparency and disclosures.
    The reforms target:
    -bank-level, or micro-prudential, regulation, which will help raise the resilience of individual banking institutions in periods of stress.
    -macro-prudential, system-wide risks that can build up across the banking sector, as well as the procyclical amplification of these risks over time.
    These two approaches to supervision are complementary as greater resilience at the individual bank level reduces the risk of system-wide shocks. The Basel Committee's oversight body - the Group of Central Bank Governors and Heads of Supervision (GHOS) - agreed on the broad framework of Basel III in September 2009 and the Committee set out concrete proposals in December 2009. These consultative documents formed the basis of the Committee's response to the financial crisis and are part of the global initiatives to strengthen the financial regulatory system that have been endorsed by the G20 Leaders. The GHOS subsequently agreed on key design elements of the reform package at its July 2010 meeting and on the calibration and transition to implement the measures at its September 2010 meeting. Basel III is part of the Committee's continuous effort to enhance the banking regulatory framework. It builds on the International Convergence of Capital Measurement and Capital Standards document (Basel II).
    Editor: Chiara OLDANI
    © 2011 ASSONEB

     

  • BEHAVIORAL FINANCE

    Abstract
    Behavioral Finance (Behavioral Finance) is an approach to finance developed after the 1970s that uses the psychology and sociology studies of the behavior of individuals and the underlying motivations, to understand the anomalies that occur in the market of capital. This theory is based on the study of the behavior of investors in situations of uncertainty that lead the subject to make incorrect and not always rational choices.

    Figure 1 describes the fundamentals of Behavioral Finance. Psychology is the scientific study of behavioral and mental processes, together with how these processes are carried out by the physical, mental state and external environment of a human being. Sociology is the systematic study of behavior and human social groups. This field focuses mainly on the influence of social relationships on people's attitudes and behavior. The classic paradigm of finance has reached the peak of success in the academy in the 1970s, but many empirical evidences from the 1980s on have questioned its solidity, such as excessive volatility of stock returns (Shiller 2003).

    Fig. 1 The fundamentals of Behavioral Finance

    Behavioral Finance offers a more realistic and human interpretation of the functioning of financial markets. The behavioral approach was first applied to the financial markets to explain on the one hand the anomalies (Shiller 2003) and on the other to consider the set of emotions and feelings that influence market operators in making their investment choices and consequently the market trend. It was then applied to many other branches of the economy and finance - but also to politics - such as corporate finance (behavioral corporate finance), macroeconomics, game theory, and so on.
    Scholars of behavioral finance do not deny that there is efficiency in financial markets, but argue that adjusting the prices of securities to the new information available is a process that is anything but rapid and immediate, characterized by a long phase during which it is possible to operate arbitrage before prices reach fair value.
    Among the exponents who have contributed substantially to the development of Behavioral Finance there are the psychologists Daniel Kahneman and Amos Tversky who can be considered the true precursors and those who have given a greater contribution to the matter, analyzing how the economic subjects acted in the evaluation field and decision-making, paying attention to errors and choices in conditions of uncertainty. They have shown the strong aversion to investor losses against risky alternatives, causing them greater regret than they are happy for a profit of equal magnitude. Daniel Kahneman and Vernon Smith were awarded the Nobel Prize in Economics in 2002 "for integrating results of psychological research into economic science, especially with regard to human judgment and the theory of decisions in conditions of uncertainty".
    Richard Thaler, Nobel laureate in economics in 2017, is considered a father of behavioral finance; he points out that there are two blocks of analysis, the first that starts from the presence of arbitrage in the markets and the second that considers the psychological distortions that limit the rationality of the choices (Barberis and Thaler 2002). In the first block we can understand those studies that have highlighted systematic errors in the markets, such as the home bias, which consists in preferring investments in companies / 'home' securities compared to foreign companies / securities, in operators such as overconfidence, which consists of in being too sure of oneself and one's abilities and information. In the second block we can understand the effects of framing, such as the aversion to losses which consists in feeling more pain for a loss, compared to the pleasure of gain (see Barber and Odean 1999). In the selection and decision process, investors often adopt a non-rigorous approach (heuristics) and poorly select information; an example is the anchoring effect, which consists in making choices without considering real values.
    Meir Statman and Hersh Shefrin conducted important research in the field of behavioral finance. Statman (1995) wrote a broad comparison between behavioral finance and traditional finance. According to Statman, behavior and individual psychology influence investors and portfolio managers regarding the assessment and decision-making processes in terms of risk assessment (ie the process of creating information with regard to adequate levels of risk) and issues related to risk assessment. framework (ie how investors make decisions based on how information is presented).
    Shefrin (2000) describes behavioral finance as an interaction of psychology with financial actions and the performance of "professional traders". He advises that these investors should be aware of their investment mistakes as well as the valuation errors of their counterparts.
    An important development of behavioral finance relates to the mechanism by which investors use the information made available to them to make choices; Thaler and Sunstein (2009) explained how nudges can be inserted 'which alter people's behavior in a predictable way, without prohibiting the choice of other options and without significantly changing their economic incentives. To count as a mere goad, surgery should be easy and inexpensive to avoid. Goads are not orders. Putting fruit at eye level on a shelf counts as a nudge. Prohibit junk food no.
    By virtue of the role of the authorities in consumer choices, the British Government led by David Cameron in 2010 established the Behavioral Insight Team - Nudge Unit; this public utility company studies cognitive distortions and deals with processing persuasive messages, wisely labeling consumer products, defining information standards in the health sector and presenting bills / invoices in a personalized manner.

    From expected utility theory to prospect theory
    Prospect Theory was developed by Kahneman and Tversky, who in the paper "Prospect Theory: An Analysis of Decision under Risk" (Kahneman and Tversky, 1979) analyze how investors systematically violate utility theory wait and highlight the limits of this theory by proposing an alternative model of analysis of the decision-making process in conditions of uncertainty. The theory of expected utility, conceived by von Neuman and Morgenstern (1946), studies the economic behavior of rational agents in situations of uncertainty, that is in situations in which the consequences of the decisions to be taken are not certain. On the basis of this theory it is indifferent for an individual to choose between events that have the same expected value, whether they are events with certain results (with probability of realization equal to 100%) or events with random results. The expected value of an event is obtained by multiplying each possible result of the event by the respective probability of realization. For example, if a lottery results in the realization of profits for 10 or 20, with a probability of 80% and 20% respectively, the expected value of the lottery is a profit of 12 calculated as follows: 10x0.8 + 20x0,2 = 12. According to the expected utility theory, in this case it is indifferent for an individual to choose between the lottery with expected value equal to 12 and another with a certain result equal to 12.

    Kahneman and Tversky (1979) have empirically analyzed the choices of a sample of individuals, to verify the presence of anomalies in their decisions that could contradict the theory of utility. When investors were asked to choose between a lottery, which offers a 25% chance of winning $ 3,000 and a lottery that offers a 20% chance of winning $ 4,000, 65% of investors opted for the second hypothesis. Conversely, when subjects were asked to choose between a 100% chance of winning $ 3,000 and an 80% chance of winning $ 4,000, 80% chose the first hypothesis. It is clear that, based on the sample analyzed, the subjects tend to prefer a certain event (even if it offered lower value winnings) compared to an event that leads to only probable gain: this is the so-called certainty effect. In other words, individuals prefer to choose an event that leads to a certain gain, even if lower, than an event that leads to a probable and unsafe gain (even if at a higher expected value). However, the two scholars have found that the subjects prefer events that cause greater losses, but with lower probability of realization than events that cause minor losses, but with greater probabilities and specularly prefer positive events that determine a minor gain, but with probability greater than realizable with respect to positive events that determine a greater gain but with a lower probability: this is the so-called reflection effect.
    Individuals overestimate certain events, showing risk aversion in the case of positive events and risk appetite in the case of negative events. This different behavior of the subjects towards the gains or losses is represented by the Value Function (Figure 2). The function indicates the expected value of the individual in the presence of gains or losses and is a concave function in the positive and convex domain in the negative one, where there is a propensity to risk. This means that individuals have a marginal sensitivity to profits and losses that changes.

    Fig. 2 The Value Function

    From figure 2 it can be seen that the curve grows less rapidly in the area of ??gains than it decreases in the area of ??losses. This happens because people value gains and losses asymmetrically. According to Kahneman and Tversky for individuals the displeasure resulting from a loss is more than double the pleasure for a gain of the same amount. Another important result of the study by the two psychologists Kahneman and Tversky is the isolation effect: the individuals observed in the sample did not consider all the elements of each alternative in the decision-making process, but only a few, neglecting others with the aim of simplifying the process of choice.

    References
    Barberis N., Thaler R. (2002). A survey of behavioral finance. NBER working paper n.9222. https://www.nber.org/papers/w9222
    Kahneman D., Tversky A., (1979). Prospect theory: An Analysis of Decision under Risk. Econometrica, Vol 47, No 2. pp. 263-292. The Econometric Society.
    Odean T., Barber B., (1999). The Courage of Misguided Convictions: The Trading Behavior of Individual Investors. Financial Analysts Journal, 1999 - Taylor & Francis.
    Shefrin H., (2000). Beyond Greed and Fear: Understanding Behavioral Finance and the Psychology of Investing. Oxford University Press.
    Shiller R. J. (2003). From Efficient Markets Theory to Behavioral Finance. Journal of Economic Perspectives, 17 (1): 83-104. DOI: 10.1257/089533003321164967 http://www.econ.yale.edu/~shiller/
    Statman M., (1995). Behavioral Finance vs. Standard Finance. Theory in Investment Management. Charlottesville, VA: AIMR: 14-22.
    Thaler R., & Sunstein, C. (2009). Nudge: La spinta gentile. Milano: Giacomo Feltrinelli Editore.
    von Neumann J., Morgenstern O. (1947). Theory of Games and Economic Behavior. Princeton, NJ, US: Princeton University Press.

  • BEIJING CONSENSUS (ENCYCLOPEDIA)

    Abstract

    It was in 2004 when the American economist Joshua Cooper Ramo, introduced for the first time ever in the political lexicon the term Beijing Consensus. It was the first attempt to reproduce China's attitude about economic development and the relations between the States. This term is used to underline some of the social economic doctrines that were born in China after 1978, as opposed to the neo-liberal development policies which are currently influencing the developing world.

    These new views have questioned whether China would be or not be able to offer an original modernization model. Some economists, such as Scott Kennedy1, bring into question the legitimacy of the term Beijing Consensus. They argue that the Chinese economic policies are not innovative, on the contrary they are rather a selective assimilation altering some of the rules and schemes already existing in Western history.

    The principal ideas of these doctrines are not based on the economic freedom and the market and politics just led by a liberal democracy, but rather on the conception of the Socialist Market Economy, the state planning and the authoritarianism.

    The Beijing Consensus has some fundamental characteristics, such as a kind of development based on innovation, the economic success necessarily depending on Gross Domestic Product (GDP), gradual reforms, state interventionism, self-determination and non-interference with another State's internal affairs.

    The economic reforms, which have been gradually carried on, and the actions of the Chinese State, have been promoting a balance between a national market expansion and a new social division of labor. This is the opposite of the neo-liberal beliefs on benefits originating from shock therapies together with the non-intervention of the State in the market control.

    Not only does the Beijing Consensus necessarily concern with economy, but, internationally speaking, it is also related to the politics and to the strengthening of the Chinese political clout . If in literature the economists try to emphasize the image of a rising China that stands opposite to other States, the Chinese institutions tend to dampen the image of an aggressive country in the international relations system. The Chinese Communist Party, as well as the institutions, put emphasis on a weak economic system mostly because China is still a developing country. They reject the vision of international aggressive politics resulting from the new rules of the Beijing Consensus.

    In fact, the key points of the paradigm of the Beijing Consensus emphasize China's ability to exploit its economic strength in international relations with other countries. China offers to developing countries a model that guarantees financial integrity, rejecting at the same time, the pressure of the great powers and of the major financial institutions like the International Monetary Fund - IMF and the World Bank.
    The concept of the Beijing Consensus was born, therefore, as opposed to the Washington Consensus2: the first embodies a model of authoritarianism and a strong state involvement in the economy; the second one represents a neoliberal3 model of market-oriented doctrines.

    In the nineties, the IMF and the WB adopted the Washington Consensus economic policies, being the United States their "major shareholder", quite necessary in any economic action.

    Therefore, in that period, a set of prescriptions were then processed and spread: The ruling classes of every Country, especially those of the developing world, should have conformed to these prescriptions.

    These points provided a reorganization of public spending, liberalization of interest rates, trade and Foreign Direct Investments … FDI, a competitive exchange rate, privatization, deregulation and strong protection of property rights. For this reason, the institutions which were born at Bretton Woods have started "advising" the States about the doctrine of structural adjustment4 which stated that economic reforms and the elimination of State Interventionism would have liberated forces able to consequentially facilitate the development. These economic doctrines were based on the assumption that good economic performance required a liberalized trade, macroeconomic stability and the proper functioning of the Market Price,in contrast with those suggested by the Beijing Consensus.

    This approach defined the position of the United States, together with the industrial Countries and the major international organizations; as a consequence the Washington Consensus became the main approach of developed countries towards the less developed ones.

    However, this set of development policies are currently at risk because of the gradual emergence of the Beijing Consensus that, promoting the search for a valid alternative to the neoliberal globalization, is playing a major role and it is consequentially raising interest especially across the Third World.

    In fact, the failure of the shock therapy in post-Soviet Russia5, in Argentina in 20016, and the emergence of Asian economies7, whose governments have played an important role in the economic development, questioned the guidelines of the Washington Consensus. This weakening collides with the Chinese reality that in the last decades has been able to overcome serious global economic crises: the 1997 Asian crisis, the speculative bubble in early 2000, until the recent financial crisis.

    In terms of diplomacy, the consensus promoted by the United States during the first decade of the twenty-first century, has been characterized by military interventionism and unilateralism, generating a strong anti-American sentiment in the developing countries.

    China, on the contrary, with its growing economic potential, is effectively extending and consolidating its political influence worldwide. China's goal is a 'peaceful ascent'; for this reason its foreign policy includes cooperation and multilateralism to make sure that other countries are willing to create collaborative relationships of mutual interest.

    The different view of China's international relations may not be extended to the rest of the world too. For instance, some of the developing countries have given a positive feedback to this view, however, the Chinese ideas have not been so successful either in the Middle East or in the West.

    Some Countries in Asia, Latin America and Africa currently seem to be very interested in linking their economies with what appears to have the highest rate of irrepressible growth of the last twenty years. However, economic cooperation with these countries is also beneficial for the political field in the major international institutions. In the United Nation (UN) and the World Trade Organization (WTO), the presence of the African States, as well as of Latin America ones, is very numerous, and all of these States, together with China have a deep interest in creating a "block" of votes to safeguard their authoritarian regimes and escape the policies of Western "democratization".

    The Chinese foreign policy and international relations have, therefore, contributed to the emergence of what is called Beijing Consensus, in opposition to the western Washington Consensus, which is followed by the major international financial institutions. According to the Washington Consensus, economic agreements are subject to ethical principles such as good governance, democracy, transparency, rule of law and human rights. The western democratization policy, therefore, threatens the authoritarian regimes that are becoming more willing to turn to Beijing, since the economic cooperation with China is not subject to conditions such as the respect for human rights and democracy. China, often driven more by economic and strategic interests rather than by ethical principles, has established friendly relations with many Countries without imposing certain conditions in the developing world. These kinds of relationships are quite useful to the authoritarian regimes in Africa, Latin America and Asia.

    China provides the important role of "peacemaker" in Asia, and of "supplier" of energy resources in Africa. The whole economic and diplomatic "System Asia" is defined by the interaction of four great powers: China, Japan, India and Russia. Asia is taking, over the years, an increasingly important role in the equilibrium of the world wide economy. Since the nineties, there has been an improvement in the relations between China and its neighbors Countries. Such improvements, in fact, are also evident especially in relation to Association of Southeast Asian Nations (ASEAN). In fact, the ASEAN has allowed China to develop relations with ten Countries. In November 2004, aiming to create a free trade area, it had signed an agreement with them in order to lower or eliminate tariffs on many products.

    In Africa, on the contrary, to support its growing process of modernization, China needs more and more supplies from abroad because domestic production is not self-sufficient and needs to find direct and lasting energy sources. For this reason, China has made Africa its main reservoir of raw materials, in exchange for direct investment, development aids, foreign debt cancellation together with alliances at the UN.

    China is able to deploy a growing consensus and to exert a strong attraction, as bearer of a model of alternative development in the West. Today, as never before, it seems ages since when Europe and the U.S. were the only economic centers in the world able to dictate their own conditions.

    The principles of the Beijing Consensus descend from Asian long tradition and experience in the direct control of the economy. The elements of this new consensus are based on trust and cooperation, as well as Asian and Confucian values. The result is a State entirely dedicated to the economic development where economic relations reflect an harmonious social order, in which producing is considered more important than consuming.
    China is able to use its economic prestige, making its rapid growth the main instrument to attract - thanks to its aegis economies- countries of the developing world through a series of economic and diplomatic relations that constitute the paradigm of the Beijing Consensus.

    __________________________________

    1In his book, The Myth of the Beijing Consensus, he defines the Chinese economic policy like a mere emulation and not innovation.
    2The term Washington Consensus was coined in 1989 by economist John Williamson to describe a set of principles of economic policy for countries in the developing world. These principles include the opening to foreign investment, the market expansion and the macroeconomic stability.
    3Set of economic, political doctrines that enhance the market and the absence of the State's role in the economy.
    4Plans of economic policies implemented by the World Bank and IMF to reduce fiscal imbalances of those countries willing to receive funding.
    5Set of economic reforms initiated in the nineties in Russia that had led the country to recession.
    6Deep economic crisis in Argentina caused by the reduction of debt by the Government, inducing high inflation and unemployment levels.
    7In the nineties, Taiwan, Singapore, Hong Kong and South Korea were nicknamed "Asian Tigers" because of the ten- year development of their economies.

    References

    ARRIGHI G. … ZHANG L. (2010) Capitalismo e (dis)ordine mondiale, Roma, Manifestolibri
    CARLO J. (2009) Sviluppo economico e strategico della Cina. Compatibilità fra geopolitica, economia e bilancio militare, Milano, Cemiss
    CAZZOLA H. R. (2009) Cina il boom made in Africa. Origini storiche e attualità di un nuovo asse mondiale, Troina, Città aperta
    GILPIN R. (2009) Economia politica globale. Le relazioni economiche internazionali nel XXI secolo, Milano, Università Bocconi
    HALPER S. (2010) The Beijing Consensus: How China's Authoritarian Model Will Dominate the Twenty-First Century, New York, Basic Books
    MIRANDA M.-SPALLETTA A. (2011) Il Modello Cina. Quadro politico e sviluppo economico, Roma, L’Asino d’oro.
    RAMO J. C. (2004) The Beijing Consensus. The Foreign Policy Centre, London, The Mezzanine
    STIGLITZ J.E. (1998) More instruments and broader goals. Moving toward the Post Washington consensus, Helsinki, Wider annual lecture
    ZHAO P. … WU S.- SHAN Y. … PHILIP HSU S. (2011) In Search Of China's Development Model: Beyond the Beijing consensus, New York, Routledge
    ZHAO S. (2004) Chinese Foreign Policy: Pragmatism and Strategic Behavior, New York, Armonk

    Editor: Giovanni AVERSA






  • BEST EXECUTION

    A principle which requires an agent acting for an investor to execute transactions on the best terms available.

    ©2012 Editor: House of Lords

  • BID-OFFER SPREADS

    The difference between the prices at which a dealer will buy or sell a financial instrument. The spread is the profit margin of the dealer.

    ©2012 Editor: House of Lords

  • BIG DATA, PRIVACY AND THE STATE IN EUROPE

    Abstract
    Big data are large sets of data that may be analysed in order to find patterns, trends and associations especially relating to human behaviour. The State in most European countries manages big data repositories, and provides public services on the basis of them; education, social security and health services are the most challenging fields of study for public entities. In fact, the information coming from data can reveal important trends that impact on public spending, and (actual and perspective) public debt. Which is the limit to the privacy of data that a Government can set in order to improve the management of its services? The recent regulation (GDPR) has addressed this delicate issue.

    Big Data https://www.big-data-europe.eu/about/
    The growing digitization and networking process within the European and global societies has a large influence on all aspects of life. Large amounts of data are being produced permanently, and when these are analysed and interlinked they have the potential to create new knowledge and intelligent solutions for economy and society. Big Data can make important contributions to the technical progress in our societal key sectors and help shape business. What is needed are innovative technologies, strategies and competencies for the beneficial use of Big Data to address societal needs.
    Climate, Energy, Food, Health, Transport, Security, and Social Sciences … are the most important societal challenges tackled by the European Union within the new research and innovation framework program “Horizon 2020”. In every one of these fields, the processing, analysis and integration of large amounts of data plays a growing role … such as the analysis of medical data, the decentralized supply with renewable energies or the optimization of traffic flow in large cities.

    Privacy of data in Europe https://ec.europa.eu/commission/priorities/justice-and-fundamental-rights/data-protection/2018-reform-eu-data-protection-rules_en
    The Regulation (EU) 2016/679 of the European Parliament and of the Council, the European Union’s ('EU') new General Data Protection Regulation (‘GDPR’), regulates the processing by an individual, a company or an organisation of personal data relating to individuals in the EU. It doesn’t apply to the processing of personal data of deceased persons or of legal persons. The rules don’t apply to data processed by an individual for purely personal reasons or for activities carried out in one's home, provided there is no connection to a professional or commercial activity. When an individual uses personal data outside the personal sphere, for socio-cultural or financial activities, for example, then the data protection law has to be respected.
    The biggest way GDPR legislation will affect data collection is that it will lead to an increased reliance on real-time analytics. Real-time analytics takes data that has just been collected and puts it to immediate use and analysis. With collected data getting an immediate turnaround, there is no need for keeping said data around for any great length of time, which is one of the issues that the GDPR seeks to address.
    Fortunately, researchers have made huge strides in making real-time analytics faster and more effective as compared to post-dated analytics, so there’s hope that this particular change can be made with a minimum of fuss.
    Social media, an avenue that many businesses use for the purpose of building customer loyalty and increasing engagement, will also be affected. This is hardly surprising, considering how much personal information ends up residing on social media accounts. Witness the recent news of Facebook releasing new privacy tools, and it becomes obvious that the rules of engagement are changing. Businesses wanting to do business with EU customers will have to be more careful about what they ask for and be more forthright with how long they are holding onto that data and what they will be doing with it.
    Furthermore, all of that Big Data being collected will have to not only be stored securely but will need to be gathered by customers who want to remove it and switch it over to another vendor. Businesses of all sizes will need to come to terms with the idea that customers will gain greater control over their own personal data.
    Digital Public Services
    The development of big data analytics improves the supply of public services; according to the IMF (2017) there are more than 400 digital public service programs worldwide. These are implemented by 'governments, non-governmental organizations, the private sector, and public-private partnerships. These programs span public services in sectors including agriculture, civic education, education, environment, health, financial services, social protection, and utilities. In addition, they use a variety of digital technologies, from computers to mobile phones to radios to smartphones' (IMF 2017, p. 210).
    Despite of the size and social relevance, it is a under-investigated field; while the impact depends on the sector, and technologies the gain in efficiency of public services seems to be positive, especially in social services, and education.
    Education
    'In education, digital technology has primarily been used for one of two purposes: as a pedagogical tool in the classroom and as a tool for monitoring teacher attendance. Overall, most studies of the impact of digital technology as a pedagogical tool suggest that digital technology improves student learning in the short term, but that these impacts diminish in the medium term. Studies in digital monitoring suggest that these programs improve teacher attendance and improve learning outcomes, where they are measured' (IMF 2017, p.212).
    Social Protection
    'Digital technology has been used in social protection in one of two ways: as a mechanism for implementing such programs, either through digital national identification schemes or electronic income transfers; or as an alternative means for targeting potential beneficiaries of such programs, primarily through big data. While there are a number of initiatives in this area, existing studies suggest that digital can reduce the costs associated with implementing these programs, allowing the public sector to provide these transfers at a lower cost' (IMF 2017, p.213).
    Civic Education
    'In civic education, digital technology has been primarily used in one of three ways: (1) providing more frequent transmission of information between citizens and the state, often during elections; (2) verifying polling results digitally during elections; and (3) digitalizing electoral ballots. Overall, these studies have found that digital approaches have effectively increased voter participation during elections and reduced fraud' (IMF 2017, p. 214).
    Agriculture
    'Digital technology in the agricultural sector has primarily been used in three ways: (1) to provide information to farmers about agricultural techniques, prices or weather; (2) to provide agricultural extension advice; and (3) to monitor agricultural extension agents (Aker, Ghosh, and Burrell 2016). Overall, studies on digital agriculture initiatives suggest that such services increase farmers’ knowledge in particular areas-such as prices and cropping systems-but have little to no impact on agricultural practices, production, or farm-gate prices' (IMF 2017, p. 214).
    Health
    'While digital technology in the health sector has been used in a variety of ways-for medical devices, record-keeping, and providing information and reminders-the majority of studies in developing countries has been in the latter area. Similar to digital agriculture interventions, these studies have found that digital technology is associated with improvements in knowledge, with mixed evidence on behavioural change and other health outcomes' (IMF 2017, p. 215).

    References
    International Monetary Fund (IMF) 2017. Digital revolutions in public finance. Edited by Sanjeev Gupta, Washington, DC, ISBN 9781484315224.

  • BIO-BASED ECONOMY

    Bio-based economy refers to an economic system not more strictly dependent on fossil fuels for energy and industrial raw materials, but on the large use of bio-fuels, like ethanol and diesel, made directly from agricultural crops, and on replacing biomass as industrial feedstocks, by fermenting and converting it to a vast range of materials thanks to enzymes and micro-organisms developed for the target. In this view biotechnology and its applications, responsible for bio-based product progress, for the diffusion of biorefineries and for the increasing use of renewable materials, represent the main way to a sustainable economy. Bio-economy research and innovation allow improvements in managing renewable biological resources, then to enter new and diversified markets in food and bio-based products. Bio-economy is named in Strategy Europe 2020 as a key element for a smart and green growth in Europe. Another relevant potential of bio-economy regards the opportunity in maintaining and creating employment in rural, coastal and industrial areas.

    Fonte:
    COM(2012)60 final, del 13 febbraio 2012, Innovating for Sustainable Growth: A Bioeconomy for Europe

    Editor: Marianna RONCHINI

  • BITCOIN CRYPTOCURRENCY

    Bitcoin is a cryptocurrency not issued by a central bank, traded on an open-source electronic platform (peer to peer) between private parties; it can be exchanged with goods and services, and is not guaranteed by any public authority.

    According to the Bank for International Settlements (BIS) (Quarterly Review, September 2017,
    “Central bank cryptocurrencies”) its main features are:

    - Electronic: cryptocurrencies are stored and used in transactions digitally.
    - Use of peer-to-peer (P2P) transactions: Cryptocurrencies can function like cash, in that any
    two people can transact directly with each other, but they differ from the typical electronic
    payments system, in which an intermediary financial institution facilitates the transaction.
    - Not the liability of anyone: Cryptocurrencies are different from virtually all other paper or
    electronic money, which are obligations of the issuers. Conventional currency (also called “fiat
    currency”) is money issued and owed by a government or central bank, while deposits, which
    are often treated as money, are issued and owed by financial institutions.

    Many different platforms are available on the net to trade cryptocurrencies; their demand and supply are not centralised.

  • BLOCKCHAIN AND PUBLIC POLICY

    Abstract
    The rapid evolution of information technology had a strong impact on individuals over the last few years; blockchain technologies represent the most prominent fields of analysis in economics, but also a challenge for the State. From a public policy point of view countries can decide to favour the development of the blockchain technology in their domestic juridical and economic system (crypto-friendly), or try to disincentive these businesses (crypto-unfriendly). Most countries including the European Union have not yet chosen to be friendly or unfriendly with respect to blockchain technologies.

    Technology is a driver of economic growth in most theoretical models; history testifies that the path of growth of countries has been heavily influenced by technological revolution; technology is however a non-continuous process, and contributes in a non linear fashion to growth. J. Schumpeter (1950) underlined the role of the innovative entrepreneur in the technological evolution, being a disruptive feature in modern economic systems.
    The first industrial revolution took place in the U.K. in the 18° century and lead to a structural change in Western economies, developing capital intensity and specialised labour. More recently, the internet revolution lead to what is considered as the fourth industrial revolution. The rapid evolution of information technology had a strong impact on individuals over the last few years; machine learning (Domingos 2015) and blockchain technologies represent the most prominent fields of analysis in economics, but also the main challenges for the State. Blockchain record and disseminate transactional and other facts underpinning economics, social and political interactions. Information is a very precious ‘asset’ in economics and technologies such as blockchain improve its flow (availability).
    Blockchain technology serves as a ledger to store and verify data and other information (Abadi 2018); data cannot be modified or changed, and information on transaction is distributed in a ‘cryptographically secured ledger, which is distributed amongst a peer-to-peer computing network’ (Novak 2018).
    Blockchain is also used for other purpose, like ‘generate consensus over those facts amongst non-intimates who are susceptible to opportunistic exploitation’ (Novak 2018, p.1) and this is the challenge for the public system we focus on.
    Countries can decide to favour the development of the blockchain technology in their domestic juridical and economic system (crypto-friendly), or try to disincentive these businesses (crypto-unfriendly); Novak (2018) describes the degrees of crypto-friendliness in table 1 (p. 11).

    Table 1 Degree of crypto friendliness
    Degree of crypto-friendliness Generic policy dispositions Perceptions of policy risk

    Crypto-friendly - Permission-less innovation

    - Regulatory clarity / light-handed regulation
    - Taxation clarity / low taxes
    - Encouragement of use cases (incl. for public services)
    - Fostering co-regulation, industry consultation or sharing perspectives

    Crypto-unfriendly - Ban / suppress blockchain use - Precautionary principle
    - Ban / suppress blockchain intermediaries (e.g. crypto-exchanges)
    - Discouragement of use cases
    - Severe regulatory treatment / heavy-handed regulation
    - Discriminatory / high taxes
    - Hostility toward, or dismissal of, blockchain industry perspectives

    Crypto-friendly jurisdictions will introduce non-punitive tax rules for crypto-assets and liabilities, in order to manage the evolution of technology also in the labour market. Jurisdictions that are considered as friendly are Australia, Estonia, Singapore, Switzerland and certain jurisdictions in the United States.
    Un-friendly jurisdictions do not introduce any legitimisation to these businesses, and examples are Bangladesh, China, Ecuador and New York State; the frustration of economic development has certain consequences in terms of global competition. Most countries, however, have not yet chosen to be friendly or unfriendly with respect to blockchain technologies.
    A relevant example of public policies to support blockchain technology has been the regulation by the Swiss Financial Market Authority (SFMA) of Initial Coin Offering (ICO) of digital currencies (Novak 2018, p. 14); Switzerland has a CryptoValley in the Canton of Zug, with firms like Ethereum; ICOs are fundraising opportunities for investors to create a blockchain, and the Swiss public authority introduced simple rules aiming at increasing information, transparency and accountability. Australia introduced in 2014 a tax on cryptocurrencies trading, according to which the supply of digital currencies is subject to the Goods and Services Tax (i.e., the Value Added Tax in Europe). This doubled the tax burden since the Goods and Services Tax had to be paid on the value of goods and services, and on the value of digital currencies; this double taxation disincentive the investments in digital currencies, and the only in 2017 has been eliminated (Novak 2018, p. 16).
    In Northern Europe, Estonia has been among the pioneer state in the supply of public services with blockchain technologies; Estonian citizens are rerecorded in blockchain, have an easy access to public services, and can vote electronically (Novak 2018, p. 18).
    In Europe, how to regulate and what remain open topics in the debate; national authorities of member countries have reviewed the key problems in the legislation, taxation and management of these innovative technologies, but a common view is far from being agreed on. From a public policy point of view, consumers, being the weakest players, shall be protected; most authorities confirm that information on blockchains technologies and risks has to be improved, for protection to be effective. The balance between the quantity and quality of information is difficult, since cognitive bias can modify the decision making process.
    The European Commission in September 2017 stated that a new interpretation of the regulatory framework is required; it should be inspired by a principle of proportionality, capable of grasping the specificities of FinTechs, regulating the activities carried out by the multiple financial operators in a uniform manner and with equal risks. Additionally, the renewed framework should assign powers of intervention to the supervisory authorities, consistent with this new architecture and allowing them to extend the controls on the multiple issues posed by the application of technology to financial activities (European Commission, 2017). The transnational nature of these business allow for certain regulatory arbitrage, that is detrimental for stability and trust.
    In Italy the financial market supervision authority (Consob) reviewed the risks, legislation and key features of the FinTech services system (2018), underlining the need for a European level legislative intervention in order to effectively protect consumers and investors in the financial system.

    References
    ABADI J. 2018. Blockchain Economics, NBER working paper n. 25407, December.
    CONSOB 2018. The development of FinTech; FinTech paper n.1, March, Rome.
    DOMINGOS P. 2015. The Master Algorithm. How the quest for the ultimate learning machine will remake our world. Penguin, New York.
    EUROPEAN COMMISSION, 2017. Summary of contributions to the 'Public Consultation on FinTech: a more competitive and innovative European financial sector', Brussel, 12.9.2017.
    NOVAK M. 2018. Crytpo-frendliness. Understanding blockchain public policy. https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3215629

  • BOND

    Loans issued by legal entities or sovereign states with an agreed rate of interest and maturity date.

    ©2012 Editor: House of Lords

  • BONOS

    Bonos are the sovereign Spanish bonds, with 10 years maturity. Are considered as the benchamrk Spanish securities, and their yield is confronted with that of German BUND (i.e. spread).

  • Book Value per Share

    It is the theoretical value of an ordinary share in case of company liquidation. It is the ratio between the company book value (BV) and the number of outstanding ordinary shares (Ns).


    It represents the allocation of book value assets, net of liabilities, among the shares. It is a relevant indicator especially for sectors such as insurance, the banking and financial, for which the activities are more easily countable.

    Bibliography

    AA.VV., Matematica Finanziaria, Monduzzi Editore, 1998.
    Abate G., Gli indici del mercato azionario. La misurazione dell'efficienza, EGEA, 2013.

    Editor: Giuliano DI TOMMASO - ASSONEBB

  • BOUGHT DEAL

    Firstly introduced in 1981 in the Eurobond Market when General Motors Acceptance Corporation sold to Credit Suisse First Boston a $100 million issue without the traditional syndication process, bought deals became popular in the 1980s in the United States and the UK. A bought deal is an underwriting technique typically used in the underwriting of bonds structured as follows. At the very beginning of the issuance process, the underwriting firm offers a bid for new shares to a company that needs to raise capital. The underwriter commits itself to purchasing a determined amount of securities with a certain coupon and maturity to resell them and earn a return on the deal. The issuer may decide to accept the offer within a defined period of time, typically only a few hours. In case of acceptance, the underwriter has bought the deal and it starts to sell the purchased securities to other investment banking firms or to its institutional investors. Although the bought deal presents several advantages, it places the underwriter at risk of capital loss, which can be mitigated by implementing hedging strategies via interest rates control.

    Bibliography
    Fabozzi F., Modigliani F., Jones F. (2010), Foundation of Financial Markets and Institutions, Pearson International Edition.

    © 2010 ASSONEBB

  • BPER - BANCA POPOLARE DELL'EMILIA ROMAGNA

    Acronym: BPER
    Banca popolare dell’Emila Romagna, whose head office is in Modena, is the leader bank of Gruppo BPER, the sixth Italian banking group according to number of branches (about 1,300). The total number of clients is about 2 million.

    In 2018 BPEPR banking group has a TIER1 of 14,7% and profit of €358million.
    Gruppo BPER is a federal body composed of 11 local banks, each with its commercial autonomy and deep-rooted in their home territories. This organisation has allowed to combine the closeness to typical customers of local banks with operational efficiency, the quality of services and the economies of scale that only big size organisations can guarantee.
    Currently, Gruppo BPER is composed of the following commercial banks: Banca popolare dell’Emilia Romagna, Eurobanca del Trentino, Banca CRV, Banca Popolare di Ravenna, Banca Popolare di Aprilia, Cassa di Risparmio della Provincia dell’Aquila, Banca Popolare di Lanciano e Sulmona, Banca della Campania, Banca Popolare del Mezzogiorno, Banco di Sardegna, and Banca di Sassari.
    Moreover, banks specialised in private and corporate banking, as well as numerous insurance companies, leasing companies, factoring companies, asset management and service companies, have joined the group.
    Through a tight network of partnerships and shareholdings, BPER guarantees an effective presence to its clients in Central-European countries, thanks to the many “Italian Desks” which are operational in local banks. Furthermore, the group is present in representative offices in Shanghai and Hong-Kong.
    BPER’s history
    BPER was established as Banca Popolare di Modena in 1867, thanks to the effort of Società Operaia di Mutuo Soccorso (Mutual Aid Workers’ Association), in order to favour savings, and to fund the economic initiatives of the popular and working social classes. In 1883, the Bank General Assembly resolved to transform the bank into a cooperative, and in 1890 each shareholder was assigned one and one vote only in the assembly, regardless of the number of shares owned. These were two decisions that would mark the bank in a permanent way, by making it comply with the principles of participation and economic democracy that still constitute its essence today.
    In the following decades, the Bank’s number of branches increased even outside the town of Modena, thus becoming the protagonist of the economic development of the territory (for instance, the creation of ‘Magazzini Generali’ (warehouses), financing for the realisation of important public works, funds to the University, etc.).
    Besides such interventions, it is important to mention the remarkable support provided to the micro-enterprises that were started after World War Two in the province, also thanks to the development of the first craft centres.
    In the early 1970s, an important process of expansion outside the area of Modena took place, through the merger of many local cooperative banks: Banca Popolare di Castelfranco Emilia (1973), Banca Popolare Agricola Commerciale di Fabbrico (1975), Banca Popolare Cooperativa Consorziale di Castelnuovo di Sotto, Banca Cooperativa Valtarese, and Banca Popolare Cooperativa Bedoniese (1979).
    On 1 January 1984, Banca Popolare di Modena merged with Banca Cooperativa di Bologna (founded in 1882), thus giving birth to Banca Popolare dell’Emilia, with its head office in Modena. Three years later, in 1987, Banca Popolare di Cavezzo merged as well. In 1992, Banca Popolare dell’Emilia merged with Banca Popolare di Cesena (founded in 1873), taking the current name of Banca Popolare dell’Emilia Romagna.


    History of Gruppo BPER
    In 1994, the project of constituting a federal banking group became real through the acquisition of numerous local banks, which maintained their autonomy and territorial roots. Between 1994 and 2004, the following banks were bought, but most of them kept their autonomy: Banca Popolare di Ravenna, Cassa Rurale di Sicignano degli Alburni, Banca Popolare del Materano, Banca Popolare di Lanciano e Sulmona, Banca CRV … Cassa di Risparmio di Vignola, Banca Popolare di Crotone, Credito Commerciale Tirreno, Banca Popolare della Val d’Agri, Banca del Monte di Foggia, Banca Popolare del Sinni, Banca Popolare di Aprilia, Banca Popolare di Castrovillari e Corigliano Calabro, Banca Popolare di Salerno, Carispaq- Cassa di Risparmio della Provincia dell’Aquila, Banca Popolare dell’Irpinia, Banco di Sardegna, and Banca di Sassari, Eurobanca del Trentino.
    Instead, Banca Popolare di Crotone, Banca Popolare del Materano, Banca Popolare della Val d’Agri, Banca Popolare del Sinni merged into the current Banca Popolare del Mezzogiorno. Banca Popolare dell’Irpinia, Banca del Monte di Foggia, Banca Popolare di Salerno, Credito Commerciale Tirreno, and Cassa Rurale di Sicigano degli Alburni merged into the current Banca della Campania. In 2009, Gruppo Meliorbanca, specialised in corporate and private banking, joined the group.

    Homepage: https://www.bper.it/

    Editor: Banca Popolare dell'Emilia Romagna, Gruppo BPER

    Update by Assonebb 2019

  • BRAZIL, RUSSIA, INDIA, INDONESIA, CHINA, SOUTH AFRICA - BRIICS

    Acronym created for the first time by Goldman Sachs to define the new emerging global economies as Brazil, Russia, India, Indonesia, China and South Africa. At first, the original term appeared to define just the BRIC (Brazil, Russia, Indonesia and China) and it was presented in a report written by the Goldman Sachs investment bank in 2001 (authored by Jim O'Neill), referring to the key-actors of the next fifty years.
    Editor: Claudio DICEMBRINO
    © 2009 ASSONEBB

  • BREAKEVEN POINT

    The point at which sales equal costs; the point is located by beakeven analysis, which determines the volume of sales at which fixed and variable costs are covered. all sales over the breakeven point produce profits, any drop below the breakeven point produces losses.

  • BRENT

    The name "Brent" comes from the naming policy of Shell UK Exploration and Production, operating on behalf of Exxon and Shell, which originally named all of its fields after birds (in this case the Brent Goose).
    Brent Crude is sourced from the North Sea. The Brent Crude oil marker is also known as Brent Blend, London Brent and Brent petroleum. It is used to price two thirds of the world's internationally traded crude oil supplies. Brent Crude is the biggest of the many major classifications of oil consisting of Brent Crude, Brent Sweet Light Crude, Oseberg, Ecofisk and Forties.
    The other well-known classifications (also called references or benchmarks) are the OPEC Reference Basket, Dubai Crude and West Texas Intermediate (WTI).
    Oil production from Europe, Africa and the Middle East flowing to the West tends to be priced relative to this oil, i.e. it forms a benchmark. However, large parts of Europe now receive their oil from the former Soviet Union, especially from Russia.



    Editor: Chiara OLDANI
    © 2009 ASSONEBB

  • BRICS (ENCYCLOPEDIA)

    Abstract

    The acronym for the combined economies of Brazil, Russia, India, China and South Africa. These five countries are among the fastest growing emerging markets over the last years. Only a few decades ago, the countries were considered marginal, now are characterized by high growth rates of Gross Domestic Product (GDP), with resources and availability of inputs. These resources and inputs can influence, with their increase, the economic balance of power in the world. Despite its strange origins and some serious challenges confronting it, the bloc of countries that has emerged into the international arena under the acronym BRICS has the potential for being a positive force in world affairs. The acronym describes the countries with the most economic potential for growth in the first half of the 21st century, based on features like size of population and therefore potential market, demography, recent growth rates and embrace of globalization. These economies are characterized by a common economic history (see Goldstein 2011): a period of specialization in primary sector (1870-1913), a period of industrialization for import substitution (1945-1980), a period of liberalization (1991 - 1992) and for the main role of the state as development driving. BRICS is not likely to become a serious political organization of states, but is an instrument of cooperation between five economies. The BRICS countries meet annually in summit where they discuss about multilateral cooperation agreements, strategic partnerships, use of foreign exchange reserves and about creation of a BRICS Development Bank that could challenge the dominance of the World Bank and the International Monetary Fund (IMF).

    History

    The term was first used in 2001 in a Goldman Sachs report, “Building Better Global Economics BRICs”. The original BRIC group of countries evolved from an acronym coined by Jim O’Neill, Goldman Sachs economist, when forecasting future economic trends and the future roles of Brazil, Russia, India and China in overtaking the advanced industrial economies and facilitating a shift in global economic power. In 2011 the group expanded following South Africa’s inclusion, to become the BRICS. The term has become a more generic marketing terms referring to these emerging markets. O’Neill suggests in his thesis that these countries may become among the four most dominant economies of the 21st century. In a process that has surprised many so far, this initial statement caught the imagination of the global financial community, mainstream media and international investors. In the paper of 2001, O’Neill explains to the economic development prospects of emerging powers able to influence future trends in the global economy. After 2001, the term become part of international relations to identify a group of emerging countries that meets regularly to discuss economic and political issues.

    The group had its first summit meeting in July 2009 in Russia. In 2010 South Africa was included (at the instigation of China). The enlarged BRICS have since had summit meetings in Brazil, in 2010; China in 2011; India in 2012; and Durban, South Africa, in 2013. They have recently acted in concert in several international platforms like G20 and United Nations, other economic initiatives include agreement to denominate bilateral trade in each other's currencies (currency swap agreement between China e Brazil), and plans for a Development Bank. There have also been declarations in favor of a shared approach in foreign policy. The most important result of the last meeting of 2013 in Durban is the creation of the BRICS Development Bank. Its goal is to provide funding for infrastructure projects, and create a "Contingent Reserve Arrangement" worth $100 billion which will help member countries counteract future financial shocks.

    In the recent years, the BRICS have expanded their involvement in the continent. South Africa has demonstrated huge potential in terms of economic development prospects, abundant natural resources, growing consumer power and favorable demographics, but is not an emerging economy like Brazil, Russia, India and China. The reasons behind BRICS countries’ involvement in Africa include their appetite for the continent’s natural resources, Africa’s large and untapped agricultural sector as well as the opportunity for investments and transfer of technology and knowledge.

    BRICS in World Economy

    The BRICS GDP in 1992 corresponded approximately to 5.4% of the world economy, while in 2012 is about 18%. The BRICS countries share in common that, in the past years, their growth rates have been on average higher than advanced countries. According Goldman Sachs they will reach 40% of the world GDP in 2050. The five countries share also by a favorable demographic situation (about 40 % of the world population), international capital and foreign direct investment (FDI), main equipment inputs, reallocation of resources from sectors of low productivity (i.e. agriculture) to more dynamic sectors (i.e. industry and services).

    Brazil, Russia and South Africa, characterized by great quantities of raw materials are the main exporting countries of oil and gas in the world. India and China, which are characterized by the development of the manufacturing industry, are the main countries exporting cheap goods to the industrialized West.

    Brazil

    Brazil ranks as the sixth largest economy in the world. It is one of the most important producers of steel and oil. The main sectors of the economy are the agribusiness, the oil, the telecommunications and the automotive. Trade agreements with China allowed Brazil to have a financially reliable partner, a balance of payments in surplus and an increase in consumption. The causes of economic growth affected the nineties, when it reduced the foreign debt ratio - GDP to 20%, thanks to a currency devaluation that has attracted a lot of foreign capital in the country. The Real, the official currency of Brazil, in recent years has strengthened its assessment on the dollar.

    Tab.1 Brazil GDP growth rate (2008-2013)

    Source: www.tradingeconomics.com

    Russia

    The international prices of raw materials, fuels and agricultural products (major exports) support the country economy. Russia currently holds the eighth nominal global GDP level however, the outlook for the Russian economy is not comparable to Brazil, India or China. The weakness factors are the lack of a network of small and medium size enterprises and of infrastructure, but especially the widespread corruption (despite the ratification of the OECD Convention on Combating Bribery of Foreign Public Officials in January 2012). Also in 2012, the country has joined the World Trade Organization (WTO).

    Tab.2 Russia GDP growth rate (2008-12)

    Source: www.tradingeconomics.com

    India

    In the past decade the country has passed through a period of accelerated growth, becoming in 2011, according to data from the International Monetary Fund (IMF), the third largest economy in the world in terms of PPP (Purchasing power parity). The economy of India is very diversified, from the agricultural sector to the advanced industrial sector. The services sector represents approximately 60% of GDP, agriculture 17%, and manufacturing 16%. India, thanks to the wide spread of the English language in all its regions, attracts foreign investment in the information technology sector. India also plays an important role in various multilateral organizations, including the Association of Souheast Asian Nations (ASEAN), the South Asian Association for Regional Cooperation (SAARC), the WTO and the United Nations.

    Tab.3 India GDP growth rate (2008-12)

    Source: www.tradingeconomics.com

    China

    (see People’s Republic of China, Socialist Market Economy, China’s Banking System)

    In twenty years, the PRC has achieved impressive economic developments, with and annual GDP average growth near 10%. Growth has transformed China from a third world country in a leader of the world economy. In the recent decades, the PRC has been able to overcome a serious global economic crisis. The economic development of China is one of the most important phenomena of the world economic history since World War II. Today, China is the first holder of the United States Bonds and the largest funder of its sovereign debt. Among developing countries the PRC is the first that receive Foreign Direct Investment (FDI). Since 2013, the PRC is the largest exporter and importer of goods in the world with the balance of trade in surplus of about $200 billion.

    Tab.4 China GDP growth rate (2008-12)

    Source: www.tradingeconomics.com

    South Africa

    The country produces 33% of the GDP of Sub-Saharan Africa, three quarters of the GDP in Southern African Development Community (SADC) and it is currently the 25th country in the world for GDP. The banking sector is one of the strengths of the country, and it is the top in international rankings for competitiveness, in fact, South Africa is one of the areas that showed the most growth rates in finance assets. The economy is also characterized by the high development of the industrial and service sectors, by important presence of mineral resources (the main export). South Africa is equipped with infrastructure and manufacturing sector characterized by a high level of productivity. One of the main competitive advantages of the country is the size of domestic market with a purchasing power of the burgeoning middle class.

    Tab.5 South Africa GDP growth rate (2008-12)

    Source: www.tradingeconomics.com

    References

    BECKER U. (2013) The BRICS and Emerging Economies in comparative perspective, Oxon, Routledge

    CASSIOLATO J. … VITORINO V. (2011) BRICS and Development Alternatives: Innovation System and Policies, London, Anthem Press

    GOLDESTEIN A. (2011) BRIC. Brasile, Russia, India, Cina alla guida dell’economia globale, Bologna, il Mulino (http://www.mulino.it/edizioni/volumi/scheda_volume.php?vista=scheda&ISBNART=15061)

    MAGRI P. … QUERCIA P. (2011) “I BRICS e noi. L’ascesa di Brasile, Russia, India e Cina e le conseguenze per l’Occidente”, Istituto per gli Studi di Politica Internazionale, ISPI, Roma (http://tinyurl.com/q4yk5tv)

    O’NEILL J. (2001), “Building better economic BRICs”, in GOLDMAN SACHS Global Economic Paper, No. 66, 30 November

    SCAFFARDI L. (2012) BRICS: Paesi emergenti nel prisma del diritto comparato, Torino, Giappichelli

    Editor: Giovanni AVERSA

  • BRICS DEVELOPMENT BANK (ENCYCLOPEDIA)

    Abstract

    BRICS is the acronym for the powerful group of leading emerging economies, namely Brazil, Russia, India, People’s Republic of China and South Africa. Since 2009, the BRICS meet regularly in one of the member countries to discuss various issues concerning the coordination of economic and foreign policies. On March 2013 in Durban South Africa, took place the fifth conference of the BRICS leaders of the five BRICS nations plan to create a development Bank in a direct challenge to the World Bank and International Monetary Fund (IMF) that they accuse of Western bias, against Bretton Woods institutions. The Bank would use $50 billion of seed capital shared equally between Brazil, Russia, India, China and South Africa. The Bank would support financing needs in emerging and developing nations. It will be active in 2015 with headquarters in South Africa. The new development Bank will operate with the national currencies used for bilateral and multilateral BRICS trade (see Swap Agreements) and it could further marginalize the increasingly unstable U.S. dollar, helping to eventually dethrone it as the global reserve currency.

    Durban Agreements vs. Bretton Woods Agreements

    BRICS and Africa - partnerships for integration and industrialisation”, this is the topic of the fifth BRICS summit in Durban, South Africa, where they discussed four main objectives: activation of multilateral cooperation agreements, strategic partnerships, agreements on the use of foreign exchange reserves, and especially for the establishment of a development Bank.

    Once the Western and the U.S. were the only economic pole in the world able to establish conditions. At the end of the eighties, the consensus and the ability to conviction of the American superpower was at its highest, thanks to defeat of socialism in the Soviet Union and the continuous economic growth (see Washington Consensus). In recent years, due to the succession of economic and financial crises, the rules from the Western economic institutions born at Bretton Woods have gradually lost influence on developing countries policies (see Beijing Consensus).The prevailing global governance architecture is regulated by institutions which were conceived in circumstances when the international landscape in all its aspects was characterized by very different challenges and opportunities. In these same years, the financing capacity of the IMF and the World Bank's regulatory authority decrease, while other economies and especially the emerging BRICS, accumulate billions of dollars in foreign exchange reserves. By creating a new development Bank Brazil, Russia, India, China and South Africa are seeking to extend their global economic and political influence and further shift the global balance of power in their favour.

    Meeting on the sidelines of the G-20 summit in Los Cabos (Mexico), the BRICS leaders asked their Finance Ministers and Central Bank Governors to explore the construction of a financial safety net and the creation of a Contingent Reserve Arrangement (CRA) amongst BRICS countries. In Durban, the five countries announced the goal to adapt with the international financial institutions and in particular to replace IMF and the World Bank for the financial assistance to the members states.This is confirmed by the summit reports where institutions like the World Bank, the IMF and even the Security Council of United Nations are considered economic and political instruments incapable to solving the issues of the global economy.

    The BRICS development Bank is established to fund development projects in BRICS countries and to fend off any future financial crisis thanks to a reserve of foreign currencies.At the Durban summit, in fact, the group's fifth since 2009, the BRICS leaders were also expected to endorse plans to create a joint foreign exchange reserves pool. In addition, the Bank will use the national currencies and not U.S. dollar, as for bilateral trade and multilateral intra-BRICS (see Brazil and China). In fact, China and Brazil have agreed to establish a currency swap line worth around 30 billion dollar in their respective currencies, which they say is designed to protect against future global financial crises.

    In addition, the Bank funding will be extended to external BRICS States with which they have commercial or political relationships, in order to increase the influence of this institution. Russia is part of the Eurasian Union, South Africa is part of Southern African Development Community (SADC) and African Development Bank (AFDB), China has strong connections with Asian nations (Asian Development Bank-ADB , Asia Pacific Economic Cooperation - APEC, the Association of Southeast Asian Nations - ASEAN, the Shanghai Cooperation Organization - SCO) and with Iran. The first measures of the new BRICS development Bank will be directed to finance infrastructures in Africa, a strategic continent from economic and geopolitical point of view.

    New international financial system and future prospects

    The BRICS announced that their establishment of a multilateral development Bank will contribute to a more world order. In a world economy currently suffering, the need for assistance in developing countries and the need to ensure financial stability is growing. Today, financial institutions with this task cannot satisfy these needs. For this reason, a new development Bank and a financial safety net BRICS can help to reduce this deficit. The decision is an additional step towards the decline of the Bretton Woods institutions, which have been riddled by corruption scandals and which are becoming increasingly discredited for debt enslavement rather than the development of developing nations. The BRICS Bank could become promoters of reversal in emerging markets. China, Russia, Brazil, India and South Africa, have the opportunity to respond to the needs of the global economy, due to the large quantity of available reserves. For these reasons, the Bank BRICS could be a potential competitor of the Western financial system.

    The BRICS countries reiterate that the world economic order is changing and that the process of developing economic policy agenda at the global level should reflect this. While there is a realization even amongst the developed countries about the increasing economic weight of emerging economies, this is not fully reflected in the governance of global institutions, such as the IMF and World Bank. The main institutions are, in fact, still blocked by the political logic of the end of World War II, while on the contrary, the governance structure of the new BRICS Bank could easily assimilate the contemporary best practices in sustainable finance, sustainable development and climate change. In this way, the Bank could play a key role for developing countries needs, or it could promote a reform process of the current economic and financial institutions. The establishment of the Bank and the reserve pools may also help their drive towards reform votes and quotas in the IMF. Currently, the USA leads the IMF, having the highest quota equal to 17.08%, which allows them to veto any decision (all decisions require 85% of votes to be adopted).

    References

    BRACHT C. (2013) “Will the Brics bank deliver a more just world order?”, The Guardian, May.

    COLEMAN I. (2013) “Ten questions for the New BRICS Bank”, Foreign Policy, Aprile (http://www.foreignpolicy.com/articles/2013/04/09/ten_questions_for_the_new_brics_bank#sthash.zlRN2YJ5.dpbs)

    LOCATELLI N. (2013) “C’erano una volta I BRICS”, Limes, Marzo (http://temi.repubblica.it/limes/cerano-una-volta-i-brics/44190)

    MAGRI P. … QUERCIA P. (2011) “I BRICS e noi. L’ascesa di Brasile, Russia, India e Cina e le conseguenze per l’Occidente”, Istituto per gli Studi di Politica Internazionale, ISPI, Roma (http://tinyurl.com/q4yk5tv)

    POLGREEN L. (2013) “Group of Emerging Nations Plans to Form Development Bank”, The New York Times, Marzo (http://www.nytimes.com/2013/03/27/world/africa/brics-to-form-development-bank.html?_r=0)

    SMITH D. (2013) "Brics eye infrastructure funding through new development bank", The Guardian, Aprile (http://www.theguardian.com/global-development/2013/mar/28/brics-countries-infrastructure-spending-development-bank)

    Editor: Giovanni AVERSA

  • BROKER

    An intermediary who acts as the agent of investors for the purposes of arranging transactions in financial instruments.

    ©2012 Editor: House of Lords

  • BROKER CROSSING NETWORK

    A system operated by an investment firm which matches clients’ orders outside organised venues (see below). Such systems were categorised as ‘OTC’ under MiFID I but will fall generally within the new OTF category in MiFID II.

    ©2012 Editor: House of Lords

  • Brownian motion

    It is a stochastic process characterised by homogeneous spread in continuous time; it has the Markov’s property and has trajectories with independent and identically distributed increments.

  • BRUSSELS CONVENTION (Encyclopedia)

    BRUSSELS CONVENTION OF 1968 ON JURISDICTION AND THE RECOGNITION AND ENFORCEMENT OF JUDGEMENTS IN CIVIL AND COMMERCIAL MATTERS AND REGULATION (CE) N. 44/2001

    General principles

    The Brussels Convention of 1968 on jurisdiction and the recognition and enforcement of judgements in civil and commercial matters (Convention) entered into force on 1 February 1973 between the six founding States of the European Economic Community (Italy, France, Germany, Belgium, the Netherlands and Luxemburg). The Convention provided the criteria for determining the competent judge for procedures in the Member States. Over the years, all new Member States of the European Union adopted the Convention. In 1988, the relationships with the European Free Trade Association (EFTA)1 were regulated through the Lugano Convention, which entered into force for Italy on 1 December 1992 and substantially reproduced the Convention. The adoption of Regulation (EC) No. 44/2001 (Regulation) made it necessary to draw a new Lugano Convention, signed on 30 October 2007 by the European Community and by Iceland, Norway and Switzerland in order to realign the rules applicable within the European Union with those concerning the remaining EFTA States.
    The Regulation, which was the first product of the process of “communitarization” of private and procedural international law, thanks to the principle of judicial cooperation introduced by the Treaty of Amsterdam in the new Article 65 of the Treaty of Rome, has substituted and deeply modified the Convention, on the basis of issues arisen during its application and due to the interpretation provided by the European Court of Justice.
    Considering that the Regulation has been applied instead of the Convention already for several years, the rest of this work will only refer to the Regulation.

    General principles

    Application

    The Regulation applies to civil and commercial matters2 and is part of the EU private international law system, together with the Regulations "Rome I" and "Rome II", ruling respectively contractual and non-contractual obligations. The matters excluded from its application are: status and legal capacity of natural persons; rights in property arising out of a matrimonial relationship, wills and succession; bankruptcy and similar proceedings; social security and arbitration.
    As a general principle, the Regulation applies when the defendant is domiciled in a Member State. Defendants domiciled in third countries can also be subjected to the Convention at certain conditions3.

    Jurisdiction

    In identifying the competent judge, the Regulation, rather than referring to the domestic rules of the specific States, directly establishes principles allowing the identification of only one competent judge for each controversy.
    As a general rule, the jurisdiction lays with the judge of the country of domicile of the defendant (Article 2, paragraph 1). Moreover, other rules provide for optional, alternative and exclusive jurisdictions, also aiming to protect the weaker party. Once the competent State has been identified, the competent judge is determined according to the domestic rules of said State.

    Recognition and enforcement of judgements

    The system formed by the Regulation and the Lugano Convention ensures that there is a substantially easy circulation of judgements in the geographic area including the European Union and EFTA. Recognition and enforcement of a foreign judgement can only be refused in the cases ruled by Article 34 of the Regulation4.

    Interpretation

    In 1971, with the Luxemburg Protocol, the Court of Justice was made competent - with powers similar to the ones it holds concerning the EU legislation … to interpret the Convention, while limiting the possibility of referral to the highest jurisdictions (in Italy Corte di Cassazione and Consiglio di Stato) and to other jurisdictions when judging on appeal. The reproduction of the Convention in the Regulation has reconfirmed the powers of the Court of Justice according to the Treaty of Rome. As for the interpretation provided by the Court over the years, it has been mostly based on the independence from national juridical systems, while referring to common general principles.

    Main provisions

    Jurisdiction: Alternative jurisdictions

    The main exception to the principle of the domicile of the defendant is, according to Article 5, paragraph 1, the alternative jurisdiction of the place where the contractual obligation is or shall be executed. With regards to this rule, the concept of contractual matter has been defined by the European Court of Justice5. The place where the obligation shall be executed is identified according to the law regulating the contract, as resulting from private international law rules6.
    The Regulation introduced more certainty for the contracts of sales and services, identifying the place of performance respectively with the place of delivery and with the place where the services have been or should have been rendered (Article 5.1).
    As for torts, delicts or quasi-delicts, the Regulation establishes the alternative jurisdiction of the place where the harmful event occurred or may occur (Article 5, number 3). This rule has been interpreted as including both the place where the damage occurred and the place where the harmful event happened, taking into account the initial direct damage, but not the consequential damages7.
    In the case of several defendants, the defendant domiciled in a contracting State can be convened in a different contracting State where another defendant is domiciled (Article 6, number 1). Following the principles developed by the European Court of Justice with regards to the Convention, it is further established that this rule can be utilised when the claims are so closely connected that it is necessary to treat them together in order to avoid irreconcilable judgements.

    Article 6 also provides for the following alternative jurisdictions:

    i) For actions on a warranty or guarantee, the court seised of the original proceedings "unless these were instituted solely with the object of removing them from the jurisdiction of the court which would be competent in their case";
    ii) For counter-claims arising from the same contract or facts, in the court of the original claim;
    iii) For contractual matters, if the action can be combined with an action against the same defendant and concerning rights in rem in immovable property, in the court of the Member State where the property is located.

    Prorogation of jurisdiction

    Article 23 grants the parties the right to derogate from the jurisdiction resulting from the above rules. If the derogation is stipulated according to the forms provided in the Regulation8, it provides exclusive competence … unless the parties agree otherwise … to the judge or judges for the current or future controversies arising from the juridical relationships under consideration. Case law in various States recognised that this rule prevails over the disciplines of single Member States providing for exclusive jurisdiction for their judges. The only limitations are those provided for the protection of workers by Article 17. It is considered admissible for the derogation clause to refer to more than one judge, or to be stipulated after the conclusion of the contract.
    Finally, except for the case of exclusive jurisdictions, the defendant who appears before a court tacitly accepts its competence, unless he/she appears to contest the jurisdiction (Article 24).

    Exclusive jurisdictions

    Article 22 lists various exclusive jurisdictions independent from the domicile of the defendant. Exclusive competence is granted, with some specifications: to the courts of the Member State in which the property is situated in proceedings which have as their object rights in rem in immovable property or tenancies of immovable property; to the courts of the Member State in which the company, legal person or association has its seat in proceedings which have as their object the validity of the constitution, the nullity or the dissolution of companies or other legal persons or associations of natural or legal persons, or of the validity of the decisions of their organs; to the courts of the Member State in which the register is kept in proceedings which have as their object the validity of entries in public registers; to the courts of the Member State in which the deposit or registration has been applied for, has taken place or is under the terms of a Community instrument or an international convention deemed to have taken place in proceedings concerned with the registration or validity of patents, trademarks, designs, or other similar rights required to be deposited or registered; to the courts of the Member State in which the judgment has been or is to be enforced in proceedings concerned with the enforcement of judgments.

    Lis pendens and related actions

    As per Article 27 of the Regulation, where proceedings involving the same cause of action and between the same parties are brought in the courts of different Member States, the competence is given to the first judge seised, if his/her competence is established. With regards to the Convention, the concept of lis pendens has been interpreted by EU and national case law as quite wider than in the Italian law, in compliance with the principle … confirmed by the European Court of Justice - that the concept is to be interpreted independently of domestic legislations and considering particularly the goal of avoiding parallel proceedings in different Member States and the consequent possibility of irreconcilable judgements9.
    In the case of related actions pending before courts of different Member States, Article 28 recognises the possibility for the judge seised subsequently to suspend the proceedings. The notion of related action is reported in paragraph 3 of the same article, according to which "…actions are deemed to be related where they are so closely connected that it is expedient to hear and determine them together to avoid the risk of irreconcilable judgments resulting from separate proceedings".
    Article 30 of the Regulation, differently from the Convention, and in order to avoid the risk of relevantly different treatments for subjects domiciled in different Member States, provides for uniform rules to identify the moment when the court is seised10.

    Recognition and enforcement

    Chapter III of the Regulation (Articles 32 to 56) concerns the recognition and enforcement of judgements and the related actions. The Regulation is characterised by a simplification of procedures, with a reduction to the minimum of the possible reasons for refusing recognition.

    Recognition and enforcement: cases of non recognition

    The Regulation prescribes (Article 34) three possible cases of non recognition of judgements rendered in a different Member State: (i) contrariety to public order; (ii) violation of certain rights of defence; (iii) contrariety to a judgement given between the same parties.
    As for contrariety to public order, which is an institute to be used only in exceptional cases, the Jenard Report to the Convention had clarified that the refusal could be based on the contrariety to the public order only when concerning the execution, not the judgement. The Regulation emphasises the exceptionality of the case by specifying that the contrariety shall be manifest.
    The protection of the right of defence concerns only the defendant in default of appearance, who can oppose recognition if the document that instituted the proceedings or an equivalent document was not served or was not served in such a way to enable them to arrange their defence. As for the second circumstance, EU case law has established that sufficiency of the time for arranging the defence is to be evaluated case by case.
    The contrariety to a previous judgement between the same parties and in the Member State where recognition is sought also includes judgements that, although concerning different objects, would cause contradictory effects or are based on irreconcilable evaluations on the existence or effects of a certain relationship. The European Court of Justice has clarified that this rule applies also to summary judgements11.
    _________________
    1EFTA included, at the time of signing of the Lugano Convention, Austria, Finland, Iceland, Norway, Sweden and Switzerland. Austria, Finland and Sweden later became Member States of the European Union.
    2The European Court of Justice has specified, with regard to the Convention (see LTU Lufttrnsportunternehmen GmbH & Co. KG v. Eurocontrol, case 29/76, 14 October 1976) that the notion of civil and commercial matter is to be determined independently from the classifications of the specific national legal systems.
    3More specifically: (i) when, in accordance with Article 16, an exclusive jurisdiction is attributed to the judges of a specific contracting State; (ii) when the parties, at least one of which is domiciled in a contracting State, agreed on the competence of the judges of a contracting State; (iii) when the defendant, even if domiciled in a third State, accepted jurisdiction according to Article 24.
    4As reported infra, they are: (i) contrariety to public order; (ii) violation of certain rights of defence; (iii) contrariety to a judgement given between the same parties.
    5In some of the most relevant cases, the Court clarified that Article 5.1 does not apply to pre-contractual liability (17 September 2002, case C-334/00, Fonderie Officine Meccaniche Tacconi spa v. Heinrich Wagner Sinto Maschinenfabrik GmbH) and, more generally, to cases where there is not a freely assumed obligation (27 October 1998, case C-51/97, Réunion européenne SA v. Spliethoff’s Bevrachtingskantoor BV). The Court also distinguished between the case when a substitute obligation for a breached obligation is concerned … which is subjected to Article 5.1 … or an independent contractual obligation, due independently from contractual violations … subjected to the general principle (6 October 1976, case C-14/76, par. 17). This has been confirmed in various domestic judgements.
    6Consolidated ECJ case law has developed since case 12/76 of 6 October 1976.
    7This is particularly important for the case of the unjustified interruption of negotiations, when the event has been considered to occur both at the domicile of the party interrupting the negotiations and at the place where the other party comes to know it, while the damage occurs at the domicile of the party that suffers the negative consequences. See Cass. 3 Mat 2005, n. 9107, Aerasport srl v. T.H. Footwear Europe GmbH.
    8The clause shall be formalised in writing, in a form agreed by the parties or … in international trade … according to the usages that the parties knew or ought to know. Written form includes any electronic communication that provides a durable record.
    9Judgement 8 December 1987, case 144/86, Gubisch Maschinenfabrik KG v. Palumbo.
    10A judge is seised, according to said article: “1. at the time when the document instituting the proceedings or an equivalent document is lodged with the court, provided that the plaintiff has not subsequently failed to take the steps they were required to take to have service effected on the defendant, or 2. if the document has to be served before being lodged with the court, at the time when it is received by the authority responsible for service, provided that the plaintiff has not subsequently failed to take the steps they were required to take to have the document lodged with the court.
    11ECJ, 6 June 2002, case C-80/00, Italian Leather Spa v. WECO Polstermbel GmbH & Co.

    Editor: Lucio LANUCARA
    © 2009 ASSONEBB

  • BUDGET

    It refers to a preliminary financial plan. It is an estimate of revenues and expenditures for a specified period. A cash budget shows cash flows, an expense budget shows projected expenditures, while a capital budget shows anticipated capital outlays. In a balanced budget revenues cover expenses.

    (Dictionary of finance and investment terms)

  • BUDGET LAW

    It's an Italian law that approves the annual budget of the State. The Budget Law is a formal law that can not make changes to the legislation in force and can not introduce new taxes. The government presents the Budget Law to the Italian Parliament before 30 October. According to the first paragraph of Article 81 of the Constitution, "each year, the Chambers approve the budgets and the final statement of accounts presented by the Government". In addition to establishing that the budget is annual, this constitutional requirement clearly subdivides the competencies of Government and Parliament, authorising the latter to approve the budget while it attributes to the former, and to no other body, the power (duty) to present the budget. From the economic and financial perspective, the budget decisions, are connected to the Finance Act (now Stability Law), which implements the programmatic objectives delineated in the economic and financial programming document -EFPD (now Public Finance Decision - DFP).

    Editor: Giovanni AVERSA

  • BUND

    Are German 10 years sovereign bonds.

  • BUSINESS ANGEL (ENCYCLOPEDIA)

    High net worth private investors who invest directly after an autonomous investigation in one or more private companies or start ups with strong growth potential in return for a shareholding in the investee company and possibly a position on the board of managers. Notably, thanks to their entrepreneurial character, their management experience, their networks of contacts and connections as well as their personal capital, they are able to facilitate the start up and the development of new business initiatives. Business angels can be defined as value adders, able to assume high risks and provide the right interpretation to business potential. Strictly speaking, business angels support entrepreneurs by following an approach which can adopt diverse forms within two macro reference models: -financial business angels: they invest risk capital in the company without being involved in management activities, or only marginally involved, by covering primarily supervising and controlling roles acting as business facilitators -industrial business angels: apart from contributing with financial resources, they participate actively in management activities thanks to their know-how and their professional and managerial competencies improving the company image as a whole. In both approaches the business angel normally has the interest to reach a significant capital gain by the moment he withdraws from the investment within a medium term time frame (3-5 years).The intervention of one or more business angels in a company is an active intervention.

    Business Angels generally invest from 25.000 Euro to 250.000 Euro per company, but also up to 400.000 Euro in United Kingdom. The average in Europe in the more industrialized countries is around 80.000 Euro per intervention, however, when they group together as syndicates, business angels may invest up to 2,5 million Euro in some countries.

    The term business angel was used for the first time during the early decades of the 20th century in the United States to characterize those well-off investors who committed huge amounts of money in the promotion of theatre productions by exploiting their knowhow to facilitate the success of the show. The investors who gave their support to various show businesses were considered as “angels” by the theatre companies. During the course of the 19thcentury this phenomenon which got more and more diffused in the economic reality of the United States was overshadowed by a capitalism which claimed economic stability, balance and predictability in which a system centred on the mixture of corporate activities of big enterprises, government intervention and involvement of syndicates was developed. The aim of this system was to assure the planning of economic activities and provide adequately for social welfare, but it also included many market distortions that discouraged free individual initiatives (bureaucratic model). Starting from the Seventies, there was a changeover to the entrepreneurial model, whose consolidation has been more evident in the United States with changes in cultural precepts including values and aspirations, in the now more efficient capital markets, and in the major rates of technological development.Most importantly the entrepreneurial model has led to a more efficient valorisation of human capital that reflects an increase of individual prosperity and a keener freedom concerning private investment decisions with regard to the acquisition of capabilities, instruction and experience.

    Business angels in Italy

    Thanks to annual surveys carried out by IBAN (the Italian Business Angels Network: www.iban.it) it is possible to follow the historical evolution of Business Angels in Italy despite the limited traceability due to its intrinsic informality. During recent years we assisted in an acceleration process in the Italian market concerning the number of finalized investments (from 12 in 2004 to 105 in 2007) as well as with regards to the total equivalent of operations (from 1.3 to 19.5 million Euro), approaching the levels experienced by other competitive international markets. This notable increase expresses a growing interest in this phenomenon and is certainly correlated to the higher operational and functional efficiency of business angel networks.

    Following the most recent survey conducted by IBAN in 2007, it was furthermore possible to define the standard profile of a business angel in Italy who can be identified as a well-off person in terms of patrimonization, interested and mainly involved in entrepreneurial, managerial or consultancy activities, primarily male with an average age of 48 years. Preferred interventions are small companies with the aim to prospect emerging markets or to open a strategic or technological parenthesis which is potentially in synergy with his own entrepreneurial activity. These operations could therefore be defined as interventions where the industrial logic usually prevails over the financial one. Principal information channels of business angels remain informal, such as those based on personal investigations carried out using proper contact networks composed of friends and partners, other entrepreneurs, industrial and business associations, occasional events and other business angels.

    70% of the representative sample invests up to 30% of their available capital, whereas the remaining part commits up to 50%. While sporadic investment prevailed in the past, today one can observe that those actors invest more frequently and with the trend to diversify. In 2007 most of the business angels concluded more than one operation with peaks of five investments within the same year, evaluating on average six opportunities before deciding to invest in one of those. The average investment was equal to 185.000 Euro, even if this amount is presumably meant to increase thanks to the development of business angels syndicates.

    76% of the IBAN sample is resident in the North of Italy. Notwithstanding this territorial concentration, it is interesting to highlight that 89% of the business angels don’t have geographic preclusions concerning their investment decisions. 40% of the benchmark declares to be available to invest by crossing national boarders.

    In 2007 the sectors which mainly attracted the attention of Italian Business Angels were: ICT/Internet (24% of preferences); commerce (13%), manufacturing, business services, biotechnologies and energy with ca. 10% each, entertainment and food both 8%.

    The medium investment duration corresponds to 3.3 years and the favourite way-out modalities can be defined as buyback by the proposers, admittance of financial investors of major dimensions as well as the involvement of an industrial partner.

    Bibliography

    EBAN … European Association of Business Angels Networks; “The role of business angels and their networks”; information for institutional interlocutors, entrepreneurs and potential angels, - the best practises in Europe -, Brussels, 2006

    IBAN … Italian Business Angels, practical guide for the development of entrepreneurial projects, starting a business with the support of a Business Angel, KPMG (edited by), June 2008.

  • BUSINESS ETHICS (Encyclopedia)

    1. Definition

    Business Ethics is a form of applied ethics, which is focused on business (Marcoux 2008). Several subjects contributed to the development of this discipline, such as law (and, in particular, civil law, labour law and international law of economy), theory of the Firm, corporate governance, political economy and moral philosophy.
    Before embarking on the discussion regarding business ethics, it is necessary to clarify the meaning of applied ethics. Applied ethics can be considered as part of or, to be more precise, as a branch of a wider discipline, that is, moral philosophy; thus, it is different from normative ethics, which investigates the rules of behaviour and their principles, and also from meta-ethics, a discipline which studies the origin of judgements and of moral considerations (Maffettone 2001). As a discipline, applied ethics originated as an application of moral principles and rules to a medical discipline (medical ethics) and, afterwards, it reached out various fields of technology and science.1 Its aim is to promote an ethical observation tightly linked to particular matters and, thus, it differs from a general or fundamental approach (as it is the case of normative theory and meta-ethics). However, a strict distinction between applied ethics and normative ethics could be misleading (Maffettone 2001). As a consequence, applied ethics is more and more focused on considering sufficiently general cases and on appealing to general principles and rules (Maffettone 2001).2
    Thus, Business Ethics is a form of applied ethics, which concerns the business world.
    It is made up of two components: one is mainly empirical, and the other one is theoretical-philosophical (Donaldson and Dunfee 1994). The first applies techniques borrowed from finance, marketing and other fields of theory of the Firm in order to study matters related to the behaviour of both enterprises and human subjects in the world of finance; the second offers a general theoretical perspective having as its main object the relation between the liberal principles of economy and individual autonomy (Maffettone 2001). Numerous studies have pointed out that there are several interconnections between the empirical approach and the theoretical- philosophical one; empirical-descriptive studies are very often an important resource in the process of justification and production of normative judgements (Donaldson and Dunfee 1994).
    From a theoretical point of view, business ethics carries out a function of impartial justification of institutions and economic regulations as well as a normative function, that is, it identifies some necessary social norms for the self-regulation of economy (Sacconi 2004). Generally speaking, we can distinguish between three different levels of application of the moral theory to the world of economy: a macro level, which is concerned with the link between state, market and society in a broad sense, a meso level, which refers to the firm as an institution, and a micro level, which examines the behaviour of individuals involved in economic organizations (Maffettone 2001; Sacconi 2004).
    The following paragraphs are aimed to offer a general introduction to the evolution of the discipline of business ethics by defining also its spheres of action.

    2. History and evolution of Business Ethics.

    Although Business Ethics is a relatively young area of study, the relation between ethics and economics is an old one. According to Amartya Sen3, in his work On Ethics and Economics (Laterza 2002), economics, as an autonomous discipline, would have originated from the fusion of two systems of thought, one of which would have been ethical theory. According to the Indian professor, this tradition dates back to Aristotle’s work. In Nicomachean Ethics, the Greek philosopher linked economics to politics and to ethics because "the study of economics, although it is immediately linked to the pursuit of wealth, at a deeper level, it is linked to other studies, aimed at the evaluation and promotion of more fundamental objectives" (Sen 2000, p.9).
    Sen’s thesis is also supported by the fact that several of the founders of classical political economy were also notable moral philosophers as in the case of Adam Smith.
    Business Ethics, understood as an autonomous area of investigation, is instead rather young, since it began to be studied in the United States between the end of the Sixties and the beginning of the Seventies of the last century (D'Orazio 2001; Marcoux 2008). The first contribution to the discipline was offered by Raymond Baumhart between 1961 and 1968.4 Nevertheless, because of the serious economic crisis the United States were facing in those years, it was only from the Seventies that the debate developed and broadened. The first great conference on Business Ethics, whose title was Ethics, Free Enterprises and Public Policy, took place at a university in Kansas in November 1974 (D'Orazio 2001; Marcoux 2008).
    The first academic positions dedicated to business ethics were created in U.S. Business Schools only after the first part of the Eighties. In 1987, while the scandal of financial espionage was affecting Wall Street, the first programme of business ethics was instituted at the Business School of Harvard (Marcoux 2008). Nowadays, business ethics is taught in several U.S. Business Schools and in philosophy departments.
    Starting from the first years of the Eighties, the academic debate concerning Business Ethics involved European scholars. The first academic position on business ethics was created in 1984 at the Business School of the University of Nijenrode in Breuklen, the Netherlands. However, for several years, the main aim of European scholars was to contextualise business ethics in the economic and entrepreneurial reality of Europe. Indeed, in 1994, a handbook, whose title was Business Ethics. A European Approach, and a collection of European case studies were published. Today, academic positions dedicated to business ethics are present in several European countries, and courses and academic programs on business ethics have emerged especially in the United Kingdom, the Netherlands, Switzerland and France.
    In Italy, the new discipline has found it difficult to affirm itself at the academic level. Nevertheless, with the introduction of the new university regulation5, courses on Ethics and/or Philosophy of the Corporation have been introduced in several academic programmes offered by the Faculties of Political Sciences and Economics.

    3. The fields of Business Ethics

    Generally speaking, it is possible to distinguish three levels of application of Business Ethics to the world of economy. While the micro level concerns the rules for equal exchange between individuals, the meso level is focused on corporations, and the macro level deals with the cultural and institutional trade rules of society as a whole.6
    The distinction among these three levels helps us understand the relevance and the amount of issues raised by scholars in the field of business ethics, ranging from the behaviour and responsibility of managers, workers and businessmen to the morality of corporations, up to the evaluation of governmental and public policies regarding the market, on a national as well as international level. Therefore, research areas vary from corporation analysis7 to international Business Ethics, to the recent development of environmental ethics applied to business8. The following paragraphs will offer a short analysis of the fields of business ethics and of the main issues linked to it.

    3.1 The analysis of corporations in business ethics

    Nowadays, many scholarly works on business ethics deal with the analysis of corporations. In this sense, business ethics can be defined as the study of the behaviour of individuals and corporations and of the practices that managers and firms should or should not adopt (Werhane and Freeman 2005).
    The attention towards the corporation, seen as the subject of the ethical investigation, became clear since the first studies on business ethics. During the first half of the Eighties, two essays, which still constitute the theoretical foundation for any investigation related to the corporation, were published: in 1982 Tom Donaldson, with his work Corporation and Morality, drew the attention of several scholars. This work was followed by Patricia Werhane’s Persons, Right and Corporations9. In both works, the ethical investigation was focused on corporations and these essays were also the first to raise some problems which are still object of academic debate, in relation to the "moral status" of the Corporation and the actors involved, whether they are managers, workers, etc. (Marcoux 2008; Werhane 2005).
    The issue of the moral status of the corporation and of its economic actors can be divided into three streams. The first, which could be defined as ontological, considers the corporation in terms of moral agency10. The second analyses the nature of the responsibility of the corporation independently from its nature of moral agent. Finally, the third stream is focused on managers’ and other workers’ responsibility (Werhane and Freeman 2005).
    With respect to the first point, the main problem concerns the possibility of considering the corporation as a moral agent. This idea derives from an analogy with the legal system, since, according to the law, the corporation has a legal personality, different from the personality of its owners and shareholders. Thus, if it is a "legal person"11 , similarly the corporation might be considered as a moral entity or a "moral person"12. However, some critics highlight the fact that the corporation should be understood as an association of persons. In this perspective, it would not be possible to attribute to the corporation actions that are carried out by individuals who are part of it.13
    Linked for some reasons to the previous point, the second issue deals with corporate responsibility. Generally, the problem is handled in terms of social contract theory (stakeholder theory). In this respect, between 1994 and 1995, Donaldson and Dunfee suggested the Integrative Social Contract Theory. In their opinion, it is possible to consider each rational individual as capable of accepting an hypothetical macro-social contract which could enable economic communities to have a significant space of free moral choice where it could be possible to generate one’s own rules of economic behaviour through micro-social contracts. In other words, according to these two American authors, at a macro level there would be general moral standards ruling economic relationships, towards which enterprises and economic actors are bound.
    Finally, with reference to the role of managers and workers, it is possible to distinguish at least two important issues: the first concerns managerial responsibility, while the second focuses on workers. In the first case, the main problem is to understand if managers’ responsibility is limited to the obligations tied to the role they play within the enterprise. In this perspective, the debate is about the possibility of extending the content of the "role’s obligation" up to include some general norms of moral nature (Werhane and Freeman 2005). In the second case, on the contrary, most of the scholarly work is focused on the nature and the purpose of employee rights.

    3.2 International Business Ethics

    The internationalization of corporations and the globalization of financial markets in the last two decades have had such a great impact on Business Ethics that a new field of investigation has emerged: International Business Ethics. The main moral issue raised by the globalized market concerns cultural relativism: considering that ethical practices deeply differ from one country to another, can we conceive of a universal moral standard for all the economic actors applicable to very different contexts? In this respect, in 1989, Donaldson suggested a solution that would have guaranteed the respect of fundamental human rights though preserving cultural difference, through a minimum list of moral standards which would have compelled international economic subjects to respect freedom of association, of speech and movement, ownership, right to an equal judgement, without any discrimination, physical and psychological security, right to bare minimum subsistence and education (Donaldson 1989). However, supporters of a relativistic account criticise this idea of a minimum moral standard, since they argue that cultural differences generate moral and unsolvable differences between societies. In this perspective, general moral standards, aimed at solving disputes generated by peculiar moral values, do not exist.
    Nevertheless, most of the scholars agree on the existence of a minimum set of universally accepted moral standards, generally recognized in the Universal Declaration of Human Rights of 1948. Recently, the Global Compact, supported by the United Nations, represented a further step in this direction. It offers a globally accepted code of conduct for economic actors. Among the principles supported by the Global Compact, there are the prohibition of complicity in cases of human rights violation, the support to freedom of association and collective bargaining, the prohibition of child labour and the abolition of every form of work discrimination (Marcoux 2008).

    3.3 Environmental ethics applied to the business world

    In the last years, environmental issues have been increasingly associated with economic development. As a consequence, a lot of scholarly work has been done on this nexus trying to understand the impact of consumerism and economic development on the ecosystem. The main issue concerns the impact of a globalised market and multinational corporations on the relation between the North and the South of the world.
    This aspect has brought to the development of two different positions. Indeed, according to a first group of scholars (Myers and Simon 1994), economic growth and consumerism of the industrialized countries are unsustainable from an environmental point of view and destructive on the ecological side and, consequently, they cannot be carried out in less developed countries. On the contrary, a second group of scholars emphasize the progress made by multinational corporations in achieving a more sustainable development, with special attention to new technologies and biotechnologies. In this sense, multinational corporations turn out to be a motivating force for the economic growth of less developed countries (Werhane and Freeman 2005).
    However, the most important issue in this field is concerned with the relation between economic development and the future of the planet. In this respect, several works have focused on the issue related to future generations: since there are not so many certainties about the future of the planet, it is necessary not to threaten the life opportunities of future generations (Werhane and Freeman 1999).

    _____________________________
    1With reference to this, Beauchamp defines Applied Ethics as follows, A weaker and more defensible view is that "applied ethics" refers to any use of philosophical methods to treat moral problems, practices and policies in the professions, technology, government, and the like. Beauchamp 2005, p.3.
    2On this, see also D’Orazio (2001).
    3Nobel Memorial Prize in Economic Sciences winner in 1998.
    4I am referring to the following works: Baumhart Raymond, 1961, "How Ethical are Businessmen", Harvard Business Review, 39(4):6-9; Baumhart Raymond, 1963, "Explanatory Study of Businessmen’s view on Ethics and Business", DBA Dissertation, Harvard Business School; Baumhart Raymond, 1968, "An Honest Profit: What Businessmen say about Ethics and Business", New York: Holt, Rinehart and Winston.
    5Italian Ministerial Decree n. 509/1999.
    6This distinction, largely employed in scholarly works, firstly appeared in the Companion to Ethics edited by Peter Singer, in Solomon, R.1991. "Business Ethics", Singer P. [Ed.] A Companion to Ethics. Malden MA: Blackwell.
    7See also Corporate Social Responsibility.
    8See also Sustainability.
    9Donaldson (1982) and Werhane (1985).
    10This problem is defined in terms of moral agency.
    11With reference to this, Marcoux argues that in the Anglo-American law, corporate personality is frequently described as a legal fiction, in this sense corporation’s personality is not an ontological fact either.
    12See also French (1979) quoted in Marcoux (2008) and Werhane (2005).
    13Velasquez (1983) quoted in Marcoux (2008) and Werhane (2005).

    Bibliography

    Beauchamp, T. L. 2005. "The Nature of Applied Ethics." In A Companion to Applied Ethics, ed. R. G. Frey and C. H. Wellman. Blackwell Publishing Group, Oxford.
    D'Orazio, E. 2001. "Recenti Sviluppi della Ricerca, Organizzazione e Formazione in Etica degli Affari." Filosofia e Questioni Pubbliche VI (1):53-112.
    Donaldson, T. 1982. Corporations and Morality. Englewood Cliffs, N.J.: Prentice Hall.
    Donaldson, T. 1989. The Ethics of International Business. New York: Oxford University Press.
    Donaldson, T, and Dunfee, T.W. 1994. "Toward a Unified Conception of Business Ethics: Integrative Social Contracts Theory." The Academy of Management Review 19 (2):252-84, (http://www.jstor.org/stable/258705).
    French, P. A. 1979. "The Corporation as a Moral Person," American Philosophical Quarterly 16: 207-215
    Harvey, B. [a cura di]. 1994. Business Ethics. A European Approach. Prentice-Hall, New York.
    Harvey, B., Van Luijk, H and Stainmann, H. 1994. European Casebook on Business Ethics. Prentice-Hall, New York.
    Maffettone, S. 2001. Etica Pubblica. Il Saggiatore, Milano.
    Marcoux, A. 2008. "Business Ethics." In Stanford Encyclopedia of Philosophy. Stanford: The Metaphysics Research Lab, Center for the Study of Language and Information, Stanford University. (http://plato.stanford.edu/entries/ethics-business/).
    Myers, N., and Simon, J. 1994. Scarcity or Abundance. W. W. Norton, New York.
    Sacconi, L. 2004. "Responsabilità Sociale come Governance Allargata d'Impresa: un'interpretazione basata sulla teoria del contratto sociale e della reputazione." Liuc Papers, Serie Etica, Diritto ed Economia 11 (143).
    Sen, A. 2002. Etica ed Economia. Laterza, Roma-Bari.
    Velasquez, M. 1983. "Why Corporations Are Not Morally Responsible For Anything They Do," Business & Professional Ethics Journal 2: 1-18.
    Werhane, P.H. 1985. Persons, Rights, and Corporations. Englewood Cliffs, Prentice Hall, N.J.
    Werhane, P.H., and Freeman, R. E. 1999. "Business Ethics: The State of the Art." International Journal of Management Reviews 1 (1):1-16. (http://dx.doi.org/10.1111/1468-2370.00002).
    Werhane, P.H., and Freeman, R.E. 2005. "Business Ethics." In A Companion to Applied Ethics, (a cura di) R. G. Frey e C. H. Wellman. Blackwell Publishing Group, Oxford.

    Editor: Valentina GENTILE
    © 2009 ASSONEBB

  • butterfly spread

    Complex options strategy that involves selling two calls and buying two calls on the same or different markets, with several maturity dates; one option has a higher exercise price, and the other a lower price. The investor in the butterfly gains if the underlying price makes no dramatic move.

  • BUY-SIDE FIRM

    Firms which manage investment funds either on their own behalf or for clients. Also referred to as “investors”.

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  • GRUPPO BANCA CARIGE

    Carige is the abbreviation of Cassa di Risparmio di Genova, the original name of Cassa di Risparmio di Genova e Imperia, founded in 1846 in Genoa, but its roots go back to 1483 when the Monte di Pietà di Genova has been established.

    In January 2019 the EUROPEAN CENTRAL BANK - ECB has exercised its BANKING SUPERVISION (ECB GUIDE) power and suspende the bank, moving it to a pre-bankrutcy procedure (amministrazione straordinaria). The ECB named 3 controllers and the bank is run by 3 managers in charge to raise capital, increase market shares and reduce costs.

    The name changed in 1967. Until the 1980s, the network of Cassa consisted only of the branches open in three provinces of the region Liguria, in addition to one in Turin, one in Milan, and the shares in Mediocredito ligure, in whose foundation it had participated in 1953, and in Istituto di Credito Fondiario della Liguria, founded in 1967. At the end of the 1980s, Carige created three companies in the financial sector: Columbus Leasing, Columbus Factoring, and Columbus Domestic. On the 1st of December, 1991, Cassa di Risparmio di Genova became a limited company, by taking the name of Banca Carige S.p.A., organised in a multifunctional credit group headed by the Bank itself, and composed of the aforementioned companies, Centro Fiduciario S.p.A., and building societies. Mediocredito Ligure and Istituto di Credito Fondiario della Liguria merged into Banca Carige in 1993. In 1991, the Bank became a bank-insurance company by stipulating an agreement of collaboration with the insurance company Gruppo d’Assicurazioni La Basilese, thus becoming a minority shareholder in companies controlled by the Swiss group, Levante assicurazioni and Vita nuova. The share turned into majority in 1997, when the Swiss group became shareholder of Banca Carige. In that same occasion, the Bank took also control of Norditalia assicurazioni, then merged with Levante assicurazioni. Between 1993 and 1999, it took over, step by step, 95.9% of Cassa di Risparmio di Savona, together with the connected Ligure Leasing and Immobiliare Carisa S.r.l.. Meanwhile, in 1994, Carige transformed its organisational model into a “universal bank”, that is to say by operating in the short, medium and long term. In January 1995, Carige was the first mutual savings bank to be listed on the Milan Stock Exchange. In 1999, 51% of Banca del Monte di Lucca was taken over. In 2000, 21 branches of Banco di Sicilia in the provinces of Palermo and Trapani, and, in the following year, 61 branches of the group Gruppo Banca Intesa in Piedmont, Lombardy, Veneto, Emilia Romagna, Tuscany, in Rome, Puglia and Sicily were bought out. The Group Banca Carige ranked 17th in the Mediobanca 2000 ranking list of Italian banking groups. In 2004, the Group increased its presence in Tuscany thanks to the takeover of Cassa di Risparmio di Carrara S.p.A.. In the same year, an historical private bank joined Gruppo Banca Carige, too: Banca Cesare Ponti. Moreover, in 2004 the savings management company Carige Asset Management SGR was founded: the management of financial products was assigned to it. In 2008, two significant takeovers took place: 79 branches belonging to Gruppo Intesa Sanpaolo in the region Valle d’Aosta, Piedmont, Lombardy, Veneto and Sardinia; 40 branches, instead, of the Gruppo Unicredit in the region Lazio, Sicily, Emilia, Veneto and Umbria. The last increase in size took place in 2010 through the takeover of 22 branches belonging to Banca Monte dei Paschi di Siena.
    Banca Carige has always tried to distinguish itself for its orientation towards innovation. Indeed, it has been the first bank to open a fully automated branch, to transform Cassa di Risparmio into a limited company listed on the Stock Exchange, to establish a branch dedicated to immigrant customers, to create an integrated network of banking and insurance outlets operating nationwide, to set up a web point for its customers, to adopt a portable digital signature, and lastly, to issue a cash card with a microchip valid throughout Europe.
    The Group promotes initiatives to increase the value of the artistic, historical and anthropological heritage, first of all that of the region Liguria, and of its social life. Publishing, art collecting, and collaboration in the realisation of cultural events are the three main ways in which Carige has expressed its activity of cultural promotion, also by encouraging the scouting of new areas to be studied.

    Link: www.gruppocarige.it

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