E-encyclopedia of banking, stock exchange and finance

Selected letter: C


    Callable bonds, also referred to as redeemable bonds, are fixed-rate bonds, usually convertible, in which the issuer is entitled to repay the debt prior to the maturity date at a set price, which can be at the par or at a premium. The parties usually agree on fixing a period during which the borrower is not entitled to call the bond (grace period).
    Fabozzi F., Modigliani F., Jones F. (2010), Foundation of Financial Markets and Institutions, Pearson International Edition.
    Editor : Bianca GIANNINI
    © 2010 ASSONEBB



    The Canada’s financial system, according to International Monetary Fund (IMF) and World Economic Forum, during recent financial crisis it has seemed to be more resistant compared to United States and Europe. Some experts assessed characteristics of Canada’s financial supervisory framework that may offer an approach that may be useful to consider for other countries. In fact, the system is framed by strong prudential regulation and supervision, a well-designed system of deposit insurance and arrangements for crisis management and resolution of failed banks, low risk tolerance and stringent capital requirements. The supervisory responsibility, in the Canadian financial system, is characterized by the federal government, the provincial governments and group of agencies within the federal government.

    Financial System: a Canadian Model of Federal Regulation

    During the global financial crisis Canada’s banks were well capitalized, well managed and well regulated, and they remain so to this day. No Canadian bank was in danger of failing or needed a government bailout. Thanks to limited exposure to the U.S. market and for a government management liability, which has facilitated access to credit for medium and long term, the Canadian economy has been able to reduce the damage of the recent financial crisis (the Canadian financial system had strengthened its management processes after the crises of the 80s and 90s, recapitalizing sectors related to the real economy, thanks to a strong system of inspections and supervision). In a recent assessment of Canada’s financial system, the IMF concluded that Canada’s system is highly mature, sophisticated, and well-managed.

    There are many important participants, including Canadian policymakers and regulatory officials, involved in shaping and adapting these regulatory frames for Canada’s financial system. In fact, the system is characterized by strong prudential regulation and supervision and a well-designed system of deposit insurance and arrangements for crisis management and resolution of failed banks. Supervisory responsibility for the financial sector in Canada is divided among the federal government, among the provincial governments, and among a group of agencies within the federal government.

    The federal government is responsible for supervising all banks, federally incorporated insurance companies, trust and loan companies, cooperative credit associations and federal pension plans. Provincial governments are responsible for supervising securities dealers, mutual fund and investment advisors, credit unions, and provincially incorporated trust, loan, and insurance companies. As a result, there are 13 provincial regulatory authorities, each administering securities laws and regulations. The Minister of Finance, however, oversees the incorporation of banks, permitting foreign bank branches, and reviews of large bank mergers. In particular, the minister has broad discretionary authority to disapprove mergers, which has effectively eliminated such transactions.

    Furthermore, Canada’s model assigns the central bank (Bank of Canada … BOC) the main role of conducting monetary policy and maintaining price stability. It has assigned the core responsibility for supervising and regulating some aspects of the financial system to a separate federal agency, while also giving provincial governments authority over other parts of the financial system. The Canada's approach is the shared responsibility among the Department of Finance and other federal financial regulatory authorities, including the Bank of Canada, the Office of the Superintendent of Financial Institutions (OSFI) and the Canada Deposit Insurance Corporation (CDIC). Ultimately, it is the Minister of Finance who is responsible for the sound stewardship of the financial system. Canada’s shared system of financial regulation and supervision proved valuable during the recent global financial crisis.

    In addition, within the federal government, the Financial Institutions Supervisory Committee (FISC) acts as the chief coordinating body that sets regulatory policy and supervises financial institutions. The Committee is comprised of the Department of Finance of the Ministry of Finance and four independent government agencies: the Office of the Superintendent of Financial Institutions (OSFI); the Bank of Canada (BOC); the Canada Deposit Insurance Corporation (CDIC); and the Financial Consumer Agency of Canada (FCAC) as shown in Table 1. These five semiofficial agencies report to the Minister of Finance, who is responsible to the Canadian Parliament.

    Tab. 1: Main Domestic financial institution

    Domestic institutions

    Core Function

    Office of the Superintendent of Financial Institutions (OSFI)

    The prudential regulator of Canadian banks and other federally regulated financial institutions. Also responsible for implementing Basel Committee principles and guidance in Canada.

    Bank of Canada (BOC)

    Canada’s central bank, responsible for setting monetary policy and promoting a stable and efficient financial system.

    Department of Finance

    Responsible for the legislative framework governing banks and other federally regulated financial institutions in Canada.

    Financial Institutions Supervisory Committee (FISC)

    A committee of senior government representatives who meet regularly to share information and advise the federal government on financial system issues. FISC members are from OSFI (Chair), the Department of Finance, Bank of Canada, Canada Deposit Insurance Corporation (CDIC) and the Financial Consumer Agency of Canada (FCAC).

    Canada Deposit Insurance Corporation (CDIC)

    CDIC is a federal Crown corporation created by Parliament in 1967 to protect deposits made with member financial institutions in case of their failure. CDIC insures deposits of up to $100,000.

    Source: Canadian Bankers Association

    In particular, the FISC generally meets quarterly, but can meet more often if needed. In addition, FISC conducts a legally mandated five-year review of the National Bank Act to ensure that federal regulatory legislation is modernized periodically. Within FISC, the OSFI plays a key role in supervising Canada’s financial sector.

    The OSFI supervises all domestic banks, branches of foreign banks operating in Canada, trust and loan companies, cooperative credit companies, life insurance companies, and property and casualty insurance companies. The OSFI has set limits on the ability of Canadian banks to leverage their capital and has set target capital ratios that are higher then the international standard. In broad terms, the OSFI is responsible for a number of activities including: assessing the financial conditions and operating performance of the institutions under its jurisdiction; reviewing information obtained from statutory filings, financial reporting, and management reporting requirements; conducting meetings with institutions; attending board meetings when necessary of institutions to discuss the results of supervisory reviews; providing composite risk ratings to institutions; advising institutions of any corrective measures that the institution will be requested to take; monitoring any corrective measures; and reporting to the Minister of Finance on an annual basis.

    In addition, recently was concluded the agreement between the Ministers of Finance of British Columbia, Ontario and Canada to establish a cooperative capital markets regulatory system. The system will have a federal statute that will address criminal matters, systemic risks in capital markets and national data collection, while member provinces will adopt a uniform act which will cover all the areas that the existing provincial securities statutes address. As it is expected to reduce compliance costs and facilitate coordination across jurisdictions and regulatory authorities, as well as to enhance systemic risk monitoring and enforcement, especially if all provinces participated.

    Banking System

    During the recent crisis, Canadian banks had a stronger balance sheet position compared to european and U.S. banks. Despite the current issues of the world economy, no Canadian bank needed public capital injections and none used public guarantees. This higher level of capital and liquidity means that Canada is well positioned to meet the higher capital and liquidity standards adopted under the Basel III framework. The IMF points out that Canadian banks have been more resilient, because Canada has a strong financial regulatory and supervisory framework. The regulatory structure also discourages Canadian banks from taking excessive risks. Canada requires banks to hold capital at rates that are higher than those set in the Basel Accords.

    Canada’s financial system is dominated by five large banking groups (Royal Bank of Canada, TD Canada Trust, Bank of Nova Scotia, Bank of Montreal, and Canadian Imperial Bank) that account for about 60% of the total assets of Canada’s financial sector. In comparison, foreign banks account for about 4% of Canada’s total assets in the financial sector. The low representation by foreign banks is attributed to the “widely-held” rule for large banks that limits the concentration of bank share ownership and, therefore, reduces the scope for mergers and for foreign entry through acquisitions or mergers. This lack of competition, combined with Canada’s financial legal framework, allows Canadian banks to concentrate more on their low-risk, profitable domestic retail banking activities (services provided to individuals including deposits, savings accounts, mortgages, credit cards, etc.). The authorities indicated that the expansion abroad could in principle help Canadian banks diversify risks, but also that they would need to monitor potential changes in banks’ risk appetite, including through on-site visits.

    Canadian banks reported record profits in 2013, as greater income from fees and wealth management and costs compression have more than offset narrower interest rate margins from the slower growth in household loans. the central bank, however, does not hide her worries for the high level of indebtedness of Canadian households (mainly because of the real estate loans), value among the highest in the OECD countries.

    Vulnerability and Potential Risks for Canada’s Financial System

    The Canadian financial system remains robust (Canadian banks are well capitalized; financial markets continue to function well; and financial market infrastructures are supporting core activities, in line with international standards) but recently garnered attention because nonetheless, there are three potential key vulnerabilities:

    1. Imbalances in the Canadian housing market. Imbalances in the housing sector continue to be demonstrated by elevated house prices, together with a buildup of supply in some segments of the housing market. House prices are still growing faster than disposable income as shown in Table 2.

    Tab. 2: Imbalances in the Canadian Housing Market

    1. 2. Elevated level of Canadian household indebtedness. The ratio of aggregate household debt to disposable income in Canada remains at a historically high level, as shown in Table 3.

    Tab. 3_ Elevated level of Canadian household indebtedness

    1. 3. Significant exposures to potential external shocks. Canada is an open economy, which means that its markets for goods, services and finance are globally integrated. While access to global markets provides important benefits to Canadian households, businesses and governments, cross-border linkages can also transmit external vulnerabilities and shocks to Canada.


    BANK OF CANADA (2014) Financial system review, BOC Report, June

    BANK OF CANADA (2012) Regulation of the Canadian Financial System, BOC Report, April (http://www.bankofcanada.ca/wp-content/uploads/2010/11/regulation_canadian_financial.pdf)

    CANADIAN BANKERS ASSOCIATION (2013) Global Banking Regulations and Banks in Canada, September


    INTERNATIONAL MONETARY FUND (2014) Canada, IMF Country Report No. 14/27

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


    PAN E. J. (2009) Structural Reform of Financial Regulation in Canada, Research paper

    Editor: Giovanni AVERSA


    The concept of capability was first formulated by Amartya Sen in the late Seventies. It has been further developed in the last thirty years. It represents the main assumption on which his theory of human development is based.
    According to the Indian economist, capability means freedom to achieve and realise different combinations of functionings. The concept of functioning, which can be traced back to Aristotle, refers to valuable beings and doings.
    Sen Amartya, Development as Freedom, Oxford, Oxford University Press, 1999.
    Sen Amartya, Inequality Reexamined, Oxford, Oxford University Press, 1992.
    Editor: Valentina GENTILE
    © 2010 ASSONEBB


    EC Directive 2006/49 on the capital adequacy of investment firms and credit institutions. The Directive sets capital requirements for investment firms by reference to their "trading book", which comprises all positions in financial instruments that are held with trading intent.

    ©2012 Editor: House of Lords



    The Capital Asset Pricing Model (CAPM) is a market equilibrium model used to define the existing trade off between risk and expected return in portfolio choices.The CAPM attempts to answer the questions that come from the Markowitz's mean-variance approach, and the paper describes the model and its measurement.

    The CAPM is based on a theoretical scheme to concretely assess the risk connected to a certain level of return according to the individual utility function. The CAPM attempts to answer the questions that come from the Markowitz's mean-variance approach, where investors make an optimal portfolio in accordance with the rule of a greater return for an equal risk (variance), or a lower risk with an equal return.
    The model hypotheses, already seen in the Markowitz model, concern the behaviour of the individual and that of the market:
    - The investors want to maximise their final wealth and they are risk averse.
    - The investment period is unique and forecasts are formulated at the beginning of the period.
    - The expected return and the standard deviation are the only parameters that orientate the portfolio choice.
    - The assets are perfectly divisible and there are no transaction costs or taxes.
    - The market is atomistic, there are no barriers with regard to investment possibilities, and all investors have the same opportunities even if the available amount of wealth differs between them.
    Moreover, it is necessary to add further assumptions to these hypotheses that are essential in establishing the concave frontier:
    - All securities are negotiable.
    - The market is perfect; that is, the information is freely and immediately available for all investors.
    - Investor expectations are homogeneous, therefore each of them has the same perception concerning the expected return, the variances and the co-variances: the efficient frontier is unique and the same for all investors.
    - The possibility to grant or obtain unlimited loans at a unique free-risk interest rate.
    The previous hypotheses allow investors, by knowing expected returns, standard deviation of securities and covariance among securities, to draw the same concave set (in virtue of the homogenous expectations) and to choose the efficient portfolios. Since the CAPM is an equilibrium market model, each investor will make the same choice.
    This framework implies that the expected return connected to a specific security shows a linear relationship with the existing co-variance between this return and the market portfolio return.
    In the Sharpe and Lintner version, the principal equation is:

    E[Ri] = Rf + ?im (E[Rm] - Rf),

    where ?im =((Cov [Ri, Rm])/(Var[Rm])

    In the previous formulation Ri is the asset return; Rm is the market return and Rf is the free-risk rate.

    Figure: graphic representation of the CAPM

    The same concept could be simply expressed in terms of excess return over free-risk rate. Calling Zi the excess return (effectively realised) of the asset i over the free-risk rate, then inserting Zi = [Ri-Rf] , and introducing the expected value of the variables Zi and Zm, the fundamental equations of the CAPM will become:

    , with .

    In the previous equation, Zm represents the excess return over the market portfolio of the various assets. Assuming that the risk-free rate is not stochastic (then its expected value is exactly equal to Rf), the two different equation versions coincide.
    By using the CAPM, it is possible to define an asset value with respect to its non-diversifiable risk (?). The CAPM is based on the following insight: in a competitive market, the expected risk premium may vary proportionally in accordance with Beta. The expected risk premium of an investment with Beta equal to 0.5 is equal to half of the market’s expected risk premium. Furthermore, the expected risk premium of an investment for which Beta is equal to 2.0 is double the market’s expected risk premium. More specifically, CAPM is a one-factor model where the factor is coefficient ? . In general, the portfolio risk premium is a linear function of ? and of the market portfolio risk premium. Therefore, there will be a single asset risk premium equal to ?*(Rm-Rf).
    It is then possible to observe:
    - A zero value ? corresponds to a free-risk asset where the return is Rf.
    - A ? value of one corresponds to the market portfolio return. In this situation, the expected return will be Rm.
    The line that links the asset expected return and its ? has a positive inclination: it is easy to note a positive correlation between the sensitivity to systematic risk, measured by ? , and the expected return (this is the so-called Security Market Line (SML) to which, in equilibrium, all the bought/sold stocks in the market belong). In other words, a progressive risk increase corresponds to a higher expected return.
    The CAPM is not the only reference model used for risk/return analysis. Other models are the Arbitrage Pricing Model (APM), where the fundamental hypothesis is that all investors with the same risk exposure should be analysed by using the same price (no arbitrage), and where the measure of market risk Beta is given by various (non specified) market risk factors. Then, there is the Multi-Factorial model, which has the same hypothesis of the APM, and where Beta is measured with respect to various macroeconomic factors. There are different versions of the CAPM, such as the intertemporal-CAPM, the Consumption-CAPM, and the Multi-CAPM (the most famous example is the one with the Fama-French factors), which are all evolutions of the basic model and where it is possible to add explicative variables in order to better capture market risk.

    Saltari, E., 1997, Introduzione all’Economia Finanziaria, NIS (La Nuova Italia Scientifica), Roma;
    Fama, E. F., French, K. R., 2004, The Capital Asset Pricing Model: Theory and Evidence, in Journal of Economic Perspectives, Vol. 18, No. 3 (estate), pp. 25-46;
    Sharpe, W. F., 1964, Capital Asset Prices: A Theory of Market Equilibrium under Conditions of Risk, in Journal of Finance, Vol. 19(3), pp. 425-442;
    Lintner, J., 1965, The Valuation of Risk Assets and the Selection of Risky Investments in Stock Portfolios and Capital Budgets, in Review of Economics and Statistics, Vol 47(1), pp. 13-37;
    Ross, S. A., 1976, The Arbitrage Theory of Capital Asset Pricing, in Journal of Economic Theory, Vol.13, pp. 341-360;
    Merton, R. C., 1973, An Intertemporal Capital Asset Pricing Model, in Econometrica, Vol. 41(5), pp. 867-887.

    © 2009 ASSONEBB


    In finance, capital buffer is the amount of capital sufficient to counter risk; it is the amount of capital a financial institution needs to hold above minimum requirements, calculated on an assessment of forecast risk. It is the base of Basel III capital requirements.



    The Italian government, in order to reverse the effects of the recent economic and financial crisis, adopted the Decreto-legge Del Fare (art. 2 decreto-legge n. 69/2013) with anti-crisis measures for small and medium enterprises (SMEs) with financing for the capital goods purchase. La “Nuova Sabatini”, new edition of the “Legge Sabatini” l. 28.11.1965 n. 1329, is the facilitation provided by the Ministero dello Sviluppo Economico (MiSE) and Cassa Depositi e Prestiti (CDP) for all companies with interest to upgrade plants, buy new equipment, invest in hardware, software and digital technologies. The new facility is intended to improve the competitiveness of the country economy and facilitate access to credit for micro, small and medium enterprises.

    Regulatory Framework

    The Decreto-legge Del Fare, especially the art. 2 decreto-legge n. 69/2013, was implemented November 27, 2013 by the Decree of MiSE, in consultation with the Ministro dell’Economia e delle Finanze and, with the circular of 10 February 2014 n. 4567 by the General Director for incentives to companies, have been given instructions for the intervention. Moreover, in the GURI no. 37 of February 14, 2014, were defined patterns of application and the documents to be submitted for granting of public funding.

    With the Law December 23, 2014, n. 190 (Stability Law 2015) the ceiling of CDP, initially amounting to 2.5 billion euro, was increased up to 5 billion. The budget, covering the years 2014-2021, for the payment of the contribution to partially hedge of the interest on bank loans (initially191.5 million euro), as provided by the Stability Law 2015, now amounts at 385,8 million euro.

    The regulations for the “Nuova Sabatini” concerns specifically: Art. 2 of decreto- legge 21 June 2013, n. 69; Decreto interministeriale 27 November 2013; Circular of 10 February 2014, n. 4567; Circular of 26 March 2014, n. 10677; Circular of 24 December 2014, n. 71299; Arti. 1, comma 243, of law 23 December 2014, n.190 (Stability Law 2015) and Art. 8 of decreto-legge 24 January 2015, n.3.


    Cassa Depositi e Prestiti (CDP) has set a ceiling of resources that banks members to the MiSE-ABI-CDP conventions or leasing companies, if they have a bank guarantee issued by conventions members, they can grant loans to SMEs in respect of investments covered by the measure, until 31 December 2016.

    The MiSE granting a contribution to SMEs, which covers part of the interest paid by companies on bank loans (as above mentioned), in relation to investments made. This contribution is the amount of the interest, calculated on a repayment plan with the conventional six-monthly installments, at the rate of 2.75% per annum for five years.

    SMEs have the opportunity to benefit the Guarantee Fund for Small and Medium-sized Enterprises, to the maximum extent permitted by the current law (80% of the loan), on the bank loan, with priority access.

    Requirements. Are eligible for aid the micro, small and medium size enterprise that, to the date of application submission, have these requirements:

    - Headquarters in Italy
    - Regular constitution and registration in the Companies Register or Register of fishing companies
    - In the full and free exercise of their rights (should not be in a state of voluntary liquidation and / or subject to bankruptcy proceedings)
    - Under such conditions as to be a company in difficulty as identified in the GBER.

    Are admitted to “Nuova Sabatini” companies operating in all productive sectors including agriculture and fisheries. Can apply even the company of Transport, in accordance with the requirements imposed in the European Regulation applicable to the sector (GBER), and also the enterprise of the Tertiary sector that intends to renew the hardware / software system. The sectors excluded are: coal industry, financial and insurance activities, manufacture of products which imitate or substitute milk or milk products, export-related activities and interventions upon the use of domestic over imported products.

    Facilitation. The facility consists in financing in the form of low-interest loans granted by banks and financial intermediaries members of conventions between the MiSE, Associazione Bancaria Italiana (ABI) and Cassa Depositi e Prestiti (CDP).

    Eligible initiatives. Eligible investments must be aimed at:

    - Creation of a new production unit;
    - Expansion of an existing production unit;
    - Diversification of production of a plant;
    - Fundamental change in the overall production process of an existing production unit;
    - Acquisition of assets directly linked to a productive unit.

    Investments must be started after the the request for access to contribution, except the investments in the agricultural sector which can be started only after the decision to grant aid.

    Eligible expenses. Eligible expenditure shall cover the purchase or acquisition in leasing of machinery, equipment, capital goods and business equipment for productive use, as well as hardware, software and digital technologies, classified in the balance sheet to the voices B.II.2, B.II.3 B.II.4 and Article 2424 of the civil Code.

    See also:

    Fin Sabatini Gruppo BPER

    Finanziamento Ristrutturazione, ammodernamento ed acquisto di beni strumentali BANCA POPOLARE DI VICENZA

    Legge Nuova Sabatini BAPR

    Mutuo Chirografario “Nuova Sabatini” VENETO BANCA

    Plafond Beni Strumentali C.d. Nuova Sabatini UBI BANCA


    Cassa Depositi e Prestiti, website (http://www.cdp.it/media/comunicati-stampa/imprese-al-via-plafond-di-2-5-miliardi-per-sostenere-investimenti-pmi.html)

    Presidenza del Consiglio dei Ministri, website (http://www.governo.it/Notizie/Ministeri/dettaglio.asp?d=77633)

    Ministero dello Sviluppo Economico, website (http://www.sviluppoeconomico.gov.it/index.php/it/incentivi/impresa/beni-strumentali-nuova-sabatini/erogazione-contributi)

    Ministero dello Sviluppo Economico, Beni strumentali, documenti (http://www.sviluppoeconomico.gov.it/images/stories/documenti/Leaflet_Beni_Strumentali_v7.pdf)

    Editor: Giovanni AVERSA

  • CAPITAL MARKET LINE (CML) (Encyclopedia)

    According to the Markowitz theory, where all assets are risky, the optimal portfolio is the one located in the efficient part of the frontier and it depends on the investor’s attitude toward risk. Investors have a different risk aversion so they will choose differently; each of them will choose a portfolio made up of distinct combinations of securities.
    By introducing a risk-free asset that could be bought and sold in a short period of time, (for instance, it is possible to grant and obtain loans at a certain rate), Tobin has shown that the efficient frontier is linear and the choice of portfolio (composed exclusively of risky assets) is independent from the individual’s attitude toward risk.
    This portfolio is along the concave frontier and has the higher ratio : it can be easily found by plotting a line that intersects the y-axis in Rf and that is tangent to the concave set. All investors have the same opportunities and the same tangency-portfolio. So the CML derives from the efficient part of the minimum variance frontier connected with the possibility to buy/sell a risk-free asset. CML is the line that represents the entire market.
    When expectations are all the same and there is a single interest rate, the concave frontier and the linear one coincide among investors; if they want to maximise the expected utility of their portfolio, they will choose a unique mix P to be combined, depending on their attitude toward risk, with the risk-free asset in order to obtain the optimum portfolio.
    When each investor wants to hold P (even in combination with Rf), the aggregate P will include all the existing securities; the exclusion of some securities from P (for instance, no one holds those assets) implies a supply excess, therefore an imbalance in the market. Those securities will not be part of the portfolio because, given the risk, they presuppose an inadequate return, so their price will necessarily decrease in order to eliminate the existing imbalance.
    If investors choose the same risky mix P, and Rf is unique, the linear frontier resulting from the combination between P and Rf is unique. This separation line, made by perfectly broad-based and efficient portfolios, is called the Capital Market Line (CML). Investors who want to invest a portion of their wealth in a risk-free asset, place their mix in the part [Rf … P] of the line. The second part of the frontier starts from P and includes the combinations ("borrowing portfolios") chosen by those who have a "limited" risk aversion. These investors take out loans at the rate Rf in order to buy higher amounts of the portfolio P. So the CML starts from the separation theorem and extends its practical implications: if there is a risk-free asset, investors choose a risky portfolio P independently from their attitude toward risk, which determines the portion of wealth to be invested in the mix P and in the risk-free asset. Basically, the choice of portfolio P is separated from individual preferences and, if the expectations are homogeneous, each investor will choose a unique risky portfolio (portfolio P) that has to be combined with the risk-free asset Rf. The risky mix of the "cautious" investor is the same as the one that belongs to the "aggressive" investor: the difference lies in the decision to grant or obtain loans (wealth repartition between P and risk-free asset) at the rate Rf. Therefore, the portfolio strategy suggested is a "passive" one: buy the mix P and carefully consider the investor’s attitude toward risk.
    The CML can be easily plotted in the risk-return space because the intercept Rf is known and the inclination comes out from the ratio between the vertical distance from P and Rf and their horizontal distance ().
    The fundamental equation is the following:

    Figure. Capital Market Line (CML)
    Therefore, the CML draws the linear frontier composed of portfolios/combinations between the risk-free asset and the market portfolio P, and describes the risk/return relationship for efficient and perfectly broad-based mixes. From this point of view, the question is whether the relationship will still be linear for single stocks or for broad-based mixes, and what correct measure of risk will be associated with each category previously mentioned. When creating the portfolio, the investor is interested in knowing the contribution of each security to the mix variance and to the mix return.
    According to the market model CAPM, the investor, in any case, will choose the market portfolio P, by considering its risk and its return. With regard to the return, it is easy to see the proportional contribution given to E(Rm) by the single asset with respect to its own E(Ri).
    Ignoring the analytic derivation, we can see how, in equilibrium, the asset contribution to should be compensated in terms of E(Rp). Therefore, if two securities have the same , they should produce the same return, otherwise it would be more convenient to reduce the amount of the less lucrative asset in order to increase the amount of the more profitable one. Similarly, if two assets have the same expected return they should have the same .
    SALTARI, E., 1997, Introduzione all’Economia Finanziaria, NIS (La Nuova Italia Scientifica), Roma;
    BECCHETTI, L., CICIRETTI, R., TRENTA, U., 2007, Modelli di Asset Pricing I: Titoli Azionari, in Il Sistema Finanziario Internazionale, Michele Bagella, a cura di, Giappichelli, Torino.
    Editor: Rocco CICIRETTI
    © 2009 ASSONEBB


    The Capital Markets Union (CMU) is a plan of the European Commission to mobilise capital in Europe and create a unique capital market. It will channel it to all companies, including SMEs, and infrastructure projects that need it to expand and create jobs.The CMU will be effective after 2019.

    By linking savings with growth, it will offer new opportunities for savers and investors. Deeper and more integrated capital markets will lower the cost of funding and make the financial system more resilient. All 28 Member States of the EU will benefit from building a true single market for capital.

    Official EU documents and analyses can be found here


    EU rules on prudential requirements mainly concern the amount of capital and liquidity that banks hold. The goal of these rules is to strengthen the resilience of the EU banking sector so that it can better absorb economic shocks, while ensuring that banks continue to finance economic activity and growth.
    Legislative history
    In 2013, the EU introduced the so-called CRD IV package comprising Directive 2013/36/EU and Regulation no 575/2013. This is the third set of amendments to the original banking directive (CRD), following two earlier sets of revisions adopted by the Commission in 2008 (CRD II) and 2009 (CRD III).
    During the financial crisis many banks were vulnerable because
    · the quality and quantity of their capital reserves was insufficient
    · they had insufficient short- and long-term liquidity
    As a result, national governments had to give unprecedented financial support to the banking sector.
    The current rules aim to prevent this in the future by setting stronger prudential requirements for banks, requiring them to keep sufficient liquidity and capital reserves.
    Directive on banking prudential requirements
    The directive governs the access to deposit-taking activities. It establishes rules on
    · corporate governance of banks
    · powers and responsibilities of national authorities (e.g. authorisation, supervision, capital buffers and sanctions)
    · requirements on internal risk management that are tied to national company laws
    Regulation on prudential requirements for credit institutions and investment firms
    The regulation establishes the prudential requirements that institutions need to respect. It sets out
    · the rules for calculating capital requirements
    · reporting and general obligations for liquidity requirements
    International banking regulation standards under Basel III
    The Basel committee on banking supervision (BCBS) sets the standard for international banking prudential regulation. It is a forum for regular cooperation on the supervision of the banking system, and is made up of national banks and supervisory authorities from 28 countries.
    The current set of standards developed by the committee is known as the Basel III framework.
    The Basel rules are not directly applicable legislation and they apply only to internationally active banks. The CRD IV package, on the other hand, are rules that all banks, as well as investment firms, are required by law to obey.
    The EU has actively contributed to developing the BCBS standards on capital, liquidity and leverage, and aims to ensure that major European banking specificities and issues are appropriately addressed. The rules introduced in the EU with the CRD IV package therefore respect the balance and ambition of the Basel III framework.

    Related links
    · Proposal to amend Directive 2013/36/EU on banking prudential requirements
    · Proposal to amend Regulation (EU) No 575/2013 on banking prudential requirements
    Information taken from here


    By carbon capture and sequestration we mean a technique where we confine the carbon dioxide (CO2) produced by large combustion plants.
    There are three different methods to capture CO2 :
    - Directly from combustion flows, by absorbing it in a specific chemical solvent. Afterwards, it is separated from the solvent and compressed in order to be transported and stored. This methodology is called post combustion.
    - Before the combustion, the combustible is convertible into hydrogen and CO2 through a process called gasification. The hydrogen can be used as a combustible for electricity production and potentially to fuel hydrogen cars and engines.
    - Oxy-fuel: the hydrogen necessary to the combustion is separated from the air before the process of combustion, thus producing CO2 that is more concentrated and easy to treat.
    At present, the debate is strictly related to the possibility offered by the technology of bordering the loss of massive amounts of CO2 after geological events or a gradual leak in the atmosphere for a prolonged time.
    Editor: Claudio DICEMBRINO
    © 2009 ASSONEBB


    Founded in 1829 as an association between private citizens, at the beginning it acted as a credit institution with mainly social functions, whose deposits contributed to improving the wellbeing of savers, and to facilitating the investments in the local economy. The results obtained since the first years of activity allowed Cassa di Risparmio di Firenze to develop rapidly, and to spread its territorial network through a few branches in other provinces of Tuscany, where, moreover, the presence and autonomy of the other provincial mutual savings banks continued. In 1992, the bank transformed itself according to law 30.7.1990 n.218, thus originating Cassa di Risparmio di Firenze S.p.A., in charge of the banking activities, and Ente Cassa di Risparmio di Firenze, a shareholder of the bank and the institution in charge of continuing the social, cultural and research activities.
    By inheriting the role of the original Cassa di Risparmio di Firenze, the foundation Ente Cassa di Risparmio di Firenze pursues its statutory objectives by operating in Tuscany, with particular attention to the territory of Florence and to the areas where the banks has traditionally operated. The foundation employs the proceeds of its large heritage in order to realise and fund projects. Furthermore, it supports those in need of solidarity, rehabilitation, and assistance. It promotes civil growth and the development of the city of Florence, as well as of the territories where it is present. The sectors in which the foundation works are: art, cultural activities and cultural assets; environmental safeguard and quality; scientific research and technological innovation; charity and philanthropy; youth education.
    In order to make its action more effective and to satisfy the needs of the territory in an organic and programmed way, every year, the priorities of intervention are listed in a programmatic document, in line with the general strategic guidelines. Such a document defines the objectives to pursue according to the available resources. The foundation operates through its own projects, as well as by supporting third party initiatives that pursue the same objectives. The Ente has three operational foundations through which it intervenes indirectly with the aim of preserving the environmental and historical heritage, of promoting the territory, and of developing financial studies: Fondazione Parchi monumentali Bardini e Peyron, Fondazione Rinascimento Digitale, and Fondazione Cesifin.
    With regard to Cassa, since 1998, it became the group leader of Gruppo Bancario Cassa di Risparmio di Firenze, which has shares in the capital stock of Cassa di Risparmio di Pistoia e Pescia, Cassa di Risparmio di Civitavecchia (51%), Cassa di Risparmio di Orvieto (73.57%), and also of: Cassa di Risparmio di Mirandola, Centrovita Assicurazioni, Findomestic banca, Findomestic sviluppo, Centrofactoring, Centroleasing, Eptaconsors and other service companies. Findomestic, today the main consumer credit provider in Italy, was created together with the French of Bnp-Paribas. The latter are indeed shareholders of Cassa di Risparmio di Firenze S.p.A. (6.99%), together with Ente Cassa di Risparmio di Firenze (43.18%), San Paolo IMI (19.09%), Ente Cassa di Risparmio di Pistoia (3.95%) and a few minor ones. In the Mediobanca ranking list of 2003 of the national banking groups by collection, Cassa di Risparmio di Firenze ranked 16th. Today, the bank has 269 branches in Tuscany and three representative offices abroad. Since 29/01/2008, following a public takeover bid, Cassa di Risparmio di Firenze S.p.A. was delisted from the Midex segment of the Milan Stock Exchange and it became controlled by Gruppo Intesa Sanpaolo.

    Links (in Italian only): www.bancacrfirenze.it; www.entecarifirenze.it


    An entity that legally interposes itself between counterparties to financial contracts, becoming the buyer to every seller and the seller to every buyer. A CCP performs a risk management function for its members by guaranteeing the performance of the legal obligations of buyer and seller.

    ©2012 Editor: House of Lords


    It is the minimum amount of money that the economic agent is willing to accept (E), as an alternative to face a prospect of risk with uncertain outcomes of a risky investment (X).

    If the economic operator is risk neutral (indifference to risk), it equals the present expected value of the asset

    On the other way, when the equality is not verified, the economic agent is risk adverse (or risk-loving) and therefore the certainty equivalent will be respectively less than (or greater than) the present expected value of the asset.


    Hardaker J. B., Huirne R. B. M.,Coping with risk in Agriculture, CABI, 2004.

    MIT OpenCourseWare, Microeconomic Theory III, Spring 2010.

    Editor: Giuliano DI TOMMASO - ASSONEBB


    A document that evidences ownership of a financial instrument.

    ©2012 Editor: House of Lords


    CETA is a new trade agreement between the EU and Canada.

    It'll make it easier to export goods and services, benefitting people and businesses in both the EU and Canada.

    The European Parliament voted in favour of CETA on 15 February 2017.

    The EU national parliaments must approve CETA before it can take full effect.

    This page provides full information on CETA.


    Checkable deposits are bank accounts upon which checks can be drawn. There are different types of checkable accounts offered by commercial banks or depository thrift institutions (Credit Unions, Mutual Saving Banks, Saving & Loan Associations...). The basic categories of checkable deposits are demand deposits or NOW (interest-bearing checking accounts) and money market deposit accounts (MMDAs). They are payable on demand; that is to say, in case a depositor demands a payment by making a withdrawal of funds, the bank is obliged to pay immediately the amount requested. The depositor is also allowed to transfer the funds directly to a third party and depositors can check all the transactions through monthly statements, that are generally printed and mailed to deposit holders by the bank. Checkable accounts are very liquid assets that allow depositors to have an easy access to their funds. For this reason, checkable deposits generally are an important but also one of the lowest-cost source of bank funds covering a large share of bank liabilities.
    Mishkin Frederic S. (2010), Economics of Money, Banking, and Financial Markets, Business School Edition (2nd Edition), Pearson Education Inc.
    © 2010 ASSONEBB


    The China Construction Bank (CCB) is the second largest Bank in the People's Republic of China (PRC) and the most important between Big Four Bank: Agricultural Bank of China (ABC), Industrial and Commercial Bank of China (ICBC) and Bank of China (BOC). The CCB is also the eighth largest Bank in the world for market capitalization with more than 13,000 branches. The CCB was founded in 1954 under the name of "People's Construction Bank of China" and later changed to "China Construction Bank" in 1996. Initially was State Bank to administer and disburse government funds for construction and infrastructure related projects under the state economic plan. In 1979, the CCB became a financial institution and gradually assumed more commercial banking functions. The CCB specializes in medium to long-term credit for infrastructure projects and urban housing development. It’s listed on the Hong Kong Stock Exchange in 2005. In addition to China, is present in all major industrialized countries, with offices in Germany, Great Britain, United States, Japan, Hong Kong, South Africa, South Korea, Singapore and Australia.

    Editor: Giovanni AVERSA

  • CHINA'S BANKING SYSTEM (Encyclopedia)


    The activity of China’s banking system is based primarily on the People’s Bank of China (PBOC),the central bank with regulatory powers of monetary policy and on the China Banking Regulatory Commission(CBRC). The PBOC, founded in 1948, is the central bank and authority of financial stability. The CBRC was established in 2003, has as its main objective the reform of State Owned Bank (SOB) and monitoring of the banking system. Currently, the system is divided into two levels: the PBOC and other commercial banks. These are divided into four state commercial banks (the "Big Four"), in commercial banks in the form of joint-stock companies, in banks of national interest, in local banks and foreign banks. The Chinese banking system, however, is still characterized by the prevalence of public banks for gradualness with which the reforms were introduced.

    Banking system evolution

    After the birth of People's Republic of China (PRC) in 1949, China's socialist economic policy promotes the nationalization of banks thanks to the Ministry of Finance, the main controller of financial services and the management of the national capital. Until the eighties, the main activity of banking system is realized, therefore, only in granting necessary credit to public companies to enable programs of national planning. The inefficient allocation of savings accumulated by public banks is used to finance investments in areas and sectors with low productivity due to public companies which don’t pursue profit maximization strategies. The Chinese banking system focus on the PBOC which plays the role of the central bank and commercial bank with the task of supervision and control of the other smaller banks. These functions are carried out within an economic structure that relegates the banking business almost exclusively to service national planning. For nearly three decades, from the birth of the Peoples' Republic of China (PRC), the real economy is supported by only one bank: the PBOC.

    In the eighties, however there has been a gradual increase in the importance of the role played by banks to support private economic activity outside the planning. Occurs in fact a decrease of power State financing and a simultaneous increase in the households savings and deposits, thanks to rising incomes due to strong economic development. The bank becomes the main instrument to allocate resources that economic growth provides the Chinese economy. From those years banking intermediation becomes essential, especially in the industrial development of China. This new role of the banks, however, requires a reorganization of banking and credit system until then managed only by the PBOC.

    In the eighties, therefore, we can see a first modification and diversification of Central Bank functions. With the start of the Deng Xiaoping economic reforms, in fact, the Government intention is to equip China's banking system less centralized. In this regard, in 1980 the PBOC is private by commercial functions and there is creation of "Big Four" to support companies in their internationalization through funding in strategic sectors.

    - Bank of China (BOC) specializes in the field of foreign trade.
    - China Construction Bank (CCB) in the field of infrastructure finance.
    - Industrial and Commercial Bank of China (ICBC) in the industrial sector.
    - Agricultural Bank of China (ABC) in the agricultural sector.

    Originally, these state-owned banks are created as special credit institutions competent in their respective fields but during the years this specialization is reduced and today they compete on all credit activities. In addition, the "Big Four" are still used by the Government to support economic plans. With them, since the nineties, there is also the gradual increase in commercial non-state owned banks and other financial companies often traded and invested in by foreign investors, as shown in Tab. 1:

    Total Assets of Banking Institutions. Source: PBOC (2010).

    These new financial entities, are characterized by a plurality of decision makers and don’t have the State as sole shareholder, so they limit the interference and distortion of policy in the granting of credit and reduce the assets of the "Big Four".

    Even today, the main distortion of the financial sector for financing enterprises derives from access to credit primarily through the four public commercial banks despite the growth of non-banking institutions and other financial entities.

    In addition, in rural areas it’s evident the increased use of informal channels to finance private sector. The development of this phenomenon is caused by the scarcity of credit granted to private companies by the Agricultural Bank of China and other rural credit cooperatives under state supervision.

    The difficulty of access to credit, the disproportionate investment share and its low efficiency, are explained in an institutional system which is struggling to adapt to the needs of the market economy. There is, in fact, a resistance to support private companies, with the result of generating allocative inefficiency that prevents to finance the most competitive sectors, slowing the development of competition.

    As for the real sphere of the economy, the reforms that have ensured the growth can boast a past thirty years, in the banking sector, the reform process has been much slower and more gradual. This gradual approach keeps alive distortions that limit the productivity growth, just as the particular favor that the banking system continues to reserve for public companies. In addition, the Chinese economy provides the state owned banks, often entrusts the management of the banking system to staff and managers chosen more for political reasons than for technical skills.

    Such distortions are still present despite the agreement made by China when it joined the World Trade Organization (WTO) in 2001. These commitments are aimed to open the banking system to foreign competition and to guarantee the highest international efficiency standards. With China's entry into the WTO, in fact, apply structural reforms to the banking system to solve the problems of vulnerability of the state banks when the system would be open to international competition. This reorganization provides the increase of their assets through a massive input of funds, the authorization for banks to fund management, the supervision strengthening through the establishment of the China Banking Regulatory Commission (CBRC) and finally the opening of the state-owned banks to foreign entities.

    From the entrance of China into the WTO, the Chinese banking activity has been directed more towards the logic of performance and efficiency, rather than logical tied exclusively to the national planning. Despite this, however, the system continues to be characterized by factors of instability. For example, the activities of foreign banks are blocked by the limitations on acquisition of shares in local banks or by the establishment of branches in a regulatory framework still far from international standards. In the literature, however, is attributed to its lack, like a full opening of the sector to international competition, the merit of having allowed the country not to suffer too much the weight of the recent financial crises and contrary to increase their influence on world financial markets.


    BAGELLA M. … BONAVIGLIA R. (2009) Il risveglio del Dragone. Moneta, banche e finanza in Cina, Venezia, Marsilio editori
    BORTOLANI S. … SANTORUM A. (1984) Moneta e banca in Cina, Milano, Giuffrè
    GOTTI TEDESCHI C. (2007) “Il settore bancario in Cina. La crescita del credito e la recente apertura agli investitori strategici stranieri”, Corriere Asia, Febbraio. (http://www.corriereasia.com/sites/default/files/settore_bancario_cina.pdf)
    MADDALONI D. (2008) Investimenti diretti in Cina. Politiche pubbliche e valutazioni economico-finanziarie, Milano, Franco Angeli
    ROSSI G. (2011) Stato e società in Cina. Comitati di villaggio, organizzazioni governative, enti pubblici, Torino, Giappichelli editore
    CHINA BANKING REGULATORY COMMISSION (2010) China Banking Regulatory Commission Annual Report, Beijing

    Editor: Giovanni AVERSA


    Rules of organised markets that typically require trading in a financial instrument to be halted when prices become volatile by reference to pre-determined parameters.

    ©2012 Editor: House of Lords


    Looking beyond the current take-make-dispose extractive industrial model, a circular economy aims to ‘redefine growth, focusing on positive society-wide benefits. It entails gradually decoupling economic activity from the consumption of finite resources, and designing waste out of the system. Underpinned by a transition to renewable energy sources, the circular model builds economic, natural, and social capital. It is based on three principles:
    • Design out waste and pollution
    • Keep products and materials in use
    • Regenerate natural systems’

    What is a circular economy?
    Looking beyond the current take-make-waste extractive industrial model, a circular economy aims to redefine growth, focusing on positive society-wide benefits. It entails gradually decoupling economic activity from the consumption of finite resources, and designing waste out of the system. Underpinned by a transition to renewable energy sources, the circular model builds economic, natural, and social capital. It is based on three principles:

    • Design out waste and pollution
    • Keep products and materials in use
    • Regenerate natural systems
    View the circular economy system diagram

    Re-thinking Progress: The Circular Economy
    There's a world of opportunity to rethink and redesign the way we make stuff. 'Re-Thinking Progress' explores how through a change in perspective we can re-design the way our economy works - designing products that can be 'made to be made again' and powering the system with renewable energy. It questions whether with creativity and innovation we can build a restorative economy.

    The concept of a circular economy
    In a circular economy, economic activity builds and rebuilds overall system health. The concept recognises the importance of the economy needing to work effectively at all scales … for large and small businesses, for organisations and individuals, globally and locally.
    Transitioning to a circular economy does not only amount to adjustments aimed at reducing the negative impacts of the linear economy. Rather, it represents a systemic shift that builds long-term resilience, generates business and economic opportunities, and provides environmental and societal benefits.

    Technical and biological cycles
    The model distinguishes between technical and biological cycles. Consumption happens only in biological cycles, where food and biologically-based materials (such as cotton or wood) are designed to feed back into the system through processes like composting and anaerobic digestion. These cycles regenerate living systems, such as soil, which provide renewable resources for the economy. Technical cycles recover and restore products, components, and materials through strategies like reuse, repair, remanufacture or (in the last resort) recycling.

    Origins of the circular economy concept
    The notion of circularity has deep historical and philosophical origins. The idea of feedback, of cycles in real-world systems, is ancient and has echoes in various schools of philosophy. It enjoyed a revival in industrialised countries after World War II when the advent of computer-based studies of non-linear systems unambiguously revealed the complex, interrelated, and therefore unpredictable nature of the world we live in … more akin to a metabolism than a machine. With current advances, digital technology has the power to support the transition to a circular economy by radically increasing virtualisation, de-materialisation, transparency, and feedback-driven intelligence.

    Circular economy schools of thought
    The circular economy model synthesises several major schools of thought. They include the functional service economy (performance economy) of Walter Stahel; the Cradle to Cradle design philosophy of William McDonough and Michael Braungart; biomimicry as articulated by Janine Benyus; the industrial ecology of Reid Lifset and Thomas Graedel; natural capitalism by Amory and Hunter Lovins and Paul Hawken; and the blue economy systems approach described by Gunter Pauli.



    Since January 2019, the Citizenship Pension (PdC) has been introduced in Italy, with an emergency decree, for families composed of one or more people over the age of 67 as a measure to combat poverty.
    The requirements of the PdC are the same as for citizenship income, unless otherwise indicated and will be operational from April 2019.
    The benefits are two: the first for housing up to € 1,180 per year and the second for income up to € 7,560. The benefits are exempt from personal income tax - IRPEF.
    The National Social Security Institute - INPS verifies the requirements of the applicants.


    The clearing house (CH) is a derivatives market infrastructure, which acts as counterparty in all transactions, thus eliminating the counterparty risk in exchange traded operations. Every market player should pay the margin (initial) at the subscription of the contract, and a maintaining margin should be paid to the CH at every price change. The CH selects its members and lets market know about open interest (i.e. number of open contracts) on a daily basis. At expiration, the CH guarantees the obligation referred to in the contract.
    Hull J. (2008) Options, futures and other derivatives, Prentice Hall.
    Oldani C. (2008) Governing Global Derivatives, Ashgate, London.
    Editor: Chiara OLDANI
    © 2010 ASSONEBB


    Climate change refers to any of the dynamics of the climate system (in terms of both mean and variance on temporal and spatial scales), which is based on the interactions between the atmosphere, the biosphere, the cryosphere, the hydrosphere, and land surface activities. Climate system dynamics may be distinguished into internal and external forces with respect to the climate system. Furthermore, they can be respectively associated with the human activity, and the natural variability or other components that are able to intensify or reduce the initial variation effect. Examples of natural components are solar fluctuations, volcanic activity, etc.
    Only recently human activity (both direct and indirect) has been taken into account as one of the main sources that are able to alter the global atmosphere composition. The most influential human actions are related to the emissions of greenhouse gases (GHGs) resulting from the exploitation of natural resources and the land use change and management (such as agricultural activity, deforestation, and forest degradation), and the use of fossil fuel for the industry and transportation development. The increase in GHG concentration in the atmosphere driven by the growing trend of GHG emissions leads to higher values of the mean world surface temperature, causing the so called "global warming" problem, which is one consequence of climate change. The Intergovernmental Panel on Climate Change (IPCC) states that the mean global surface temperature has increased by about 0.74 °C in the last 100 years only (IPCC, 2007).
    The interaction between natural variability and human activity results in the variation of different meteorological parameters such as maximum and minimum global surface temperatures, ocean temperature, precipitation levels, etc.
    Research on climate change focuses mainly on the development of models to analyse how climatic and physical values change over time and what are the interactions between climate change and climate change drivers. Climate models are often used to simulate the response of the climate system to greenhouse gas (GHG) and aerosol emission or concentration scenarios, or radiative forcing scenarios. Climate-economic models, as e.g. the ICES (Bosello et al., 2007) and the WITCH (Bosetti et al.,2006) models, translate climate changes into their socio-economic impacts.
    One of the most important international steps in the research on climate change was the creation in 1998 of the IPCC by the United Nation Environmental Programme (UNEP) along with the World Meteorological Organization (WMO). The aim of this organisation is to collect and spread the scientific and technical information produced worldwide, which is relevant for the understanding of the climate change risk. The 1995 IPCC Second Assessment Report provided a great contribution to the negotiations of the Protocol adopted in Japan on 11 December 1997.
    Bosello F., De Cian E. and Roson R., (2007). Climate Change, Energy Demand and Market Power in a General Equilibrium Model of the World Economy.
    Fondazione Eni Enrico Mattei Working Paper N.71.2007.
    Bosetti, V., C. Carraro, M. Galeotti, E. Massetti and M. Tavoni (2006).
    WITCH: A World Induced Technical Change Hybrid Model. The Energy Journal, Special Issue "Hybrid Modelling of Energy Environment Policies: Reconciling Bottom-up and Top-down", pp. 13-38.
    IPCC, 2007: Climate Change 2007: The Physical Science Basis. Contribution of Working Group I, to the Fourth Assessment Report of the Intergovernmental Panel on Climate Change. Synthesis Report.
    Editor: Melania MICHETTI
    © 2009 ASSONEBB

  • Cohesion Policy: priorities and investments of the European Union in the programming period 2014-2020 (Encyclopedia)


    The cohesion policy, also known as regional policy, is the main European Union policy used to reduce the development gap between regions in the Member States, as well as, it is the most important investment instrument for the Eu. The cohesion policy is divided into cycles planning for 7 years. The regulations governing the last investment cycle for the period 2014-2020 was adopted in December 2013 by the Council of the European Union with an allocation of 351.8 billion euro, approximately one third of the EU budget, to which is added co-financing of individual Member States. The implementation of cohesion policy and the use of available resources is based on three main funds: European Regional Development Fund (ERDF), European Social Fund (ESF), the Cohesion Fund. After identifying the priorities, these resources will be used to finance transport infrastructure and communications, to support small and medium-sized enterprises (SMEs) in the processes of innovation and competitiveness, to create jobs, to strengthen and modernize education systems and to create social inclusion. The main goal of this new programming of cohesion policy, in accordance with the "Europe 2020", is to achieve a growth inclusive, smart and sustainable.


    ‘Cohesion policy’ is the policy behind the hundreds of thousands of projects all over Europe that receive funding from the European Regional Development Fund (ERDF), the European Social Fund (ESF) and the Cohesion Fund (Cohesion Fund applies to EU Member States which have a GDP lower than 90 % of the EU-27 average … Croatia not taken into account).

    Economic and social cohesion … as defined in the 1986 Single European Act … is about ‘reducing disparities between the various regions and the backwardness of the least-favoured regions’. The EU's most recent treaty, the Lisbon Treaty, adds another facet to cohesion, referring to ‘economic, social and territorial cohesion’.

    The idea is that cohesion policy should also promote more balanced, more sustainable ‘territorial development’ … a broader concept than regional policy, which is specifically linked to the ERDF and operates specifically at regional level.

    In the 2014-2020 budgetary period, coordination and coherence between cohesion policy and the other EU policies contributing to regional development, namely rural development and fisheries and maritime policy, has been strengthened by laying down common provisions for the ERDF, the ESF, the Cohesion Fund, the European Agricultural Fund for Rural Development (EAFRD), and the European Maritime and Fisheries Fund (EMFF). All five funds together are known as the European Structural and Investment (ESI) Funds.

    EU legislation

    Cohesion policy is born from Treaty of Rome (1957). In its preamble, in fact, it expressly refers to the need “to strengthen the unity of their economies and to ensure their harmonious development by reducing the differences existing between the various regions and the backwardness of the less-favoured regions”. Most recently cohesion policy is legitimacy in 5 articles of the Treaty of Lisbon (2010), from 174 to 178.

    Divided into planning cycles for 7 years, the resources of cohesion policy are based on the Multiannual Financial Framework (MFF), which provides the financial planning of the European Union.

    On the Official Journal of the European Union, series L 347 of 20 December 2013 were published the Regulations on the Structural Funds and investment in Europe (SIE) for the new programming period 2014-2020. The next programming cycle is, in fact, governed by the following new rules:

    N°1 Regulation contains common provisions: on the European Regional Development Fund, the European Social Fund, the Cohesion Fund, the European Agricultural Fund for Rural Development and the European Fund for Maritime Affairs and Fisheries (EU Regulation No. 1303 / 2013). The Regulation provides for the adoption by the European Commission, the Common Strategic Framework (CSF), which aims to suggest guidelines for the definition of investment priorities for Member States and for the regions, as well as the implementation of policy cohesion;

    N° 5 Specific regulations to each fund: ERDF (EU Regulation n. 1301/2013), the ESF (EU Regulation n. 1304/2013) Cohesion Fund (EU Regulation n. 1300/2013), EAFRD (EU Regulation. 1305/2013), EMFF (Regulation pending approval and publication);

    N° 2 Regulations specific to: the goals of "European territorial cooperation" Regulation (EU) No. 1299/2013 and the European grouping of territorial cooperation (EGTC) Regulation (EU) No. 1302/2013.

    Functioning Cohesion policy: the role of Commission, Member States and Regions

    The Cohesion policy is characterized by governance based on the work between the European Commission, Member States and local authorities. In the implementation of this policy therefore are developed different stages involving, with different grade, these actors.

    A preliminary phase is the identification of target areas of funding (regions). The level of support in the funds allocation and the national contribution or "co-financing rate" to be allocated to each region depends on their economic development. The classification of regions (Figure 1) concerns three levels identified according to the GDP per capita:

    - Less developed regions (GDP / capita <75% of the eu-27);

    - Transition Regions (GDP / capita between 75% and 90% of the average u-27);

    - More developed regions (GDP / capita> 90% of the eu-27 average).

    Figure 1: Classification Regions European Union for per capita GDP

    Source: European commission

    In addition to the identification of the regions where allocate the funds, the implementation of cohesion policy is characterized by further steps. Specifically, the budget and the rules about it are mutually agreed by the European Parliament and the EU Council of Ministers on the basis of a Commission proposal. Common measures are taken in addition to specific rules for each fund ERDF, ESF, CF, EAFRD and EMFF (to the rules on the 2014-2020 programming see above paragraph EU legislation).

    A third phase is identified in the formulation of the priorities of cohesion policy on the basis of consultations between the Commission and Member States. For this reason, the implementation of cohesion policy is needed "partnership agreement" between the member state and the European Commission. Specifically, the partnership agreement is the document prepared by a Member State in cooperation with the EU and national local institutions, defining strategies, methods and expenditure priorities. Each Member State then draws up an partnership agreement it proposes a list of Operational Programmes (OPs) for concrete action. The OP can relate entire countries or entire regions of the EU, but also cooperation activities involving more than one country.

    Afterwards, the Commission negotiates the final terms of investment plans (Partnership agreement and OPs) with national and regional authorities. The negotiations with the Member State ends with the approval of the final partnership agreement by the European Commission.

    In the last phase of implementation, specific OPs are actuated by the EU countries and their regions. This means selecting, monitoring and evaluating hundreds of thousands of projects. The work is organized by "managing authority" in each country.

    Programming 2014-2020: priorities, investment and funds

    Cohesion policy is the main investment policy of the European Union because it uses about one-third of its total budget. There are many changes from the previous programming period 2007-2013, as the introduction of a single set of rules for all funds, the introduction of prerequisite for financing, the strengthening of the urban dimension and the struggle for inclusion social, the possibility of suspending the allocation of funds to the Member State that does not respect the economic provisions of European Union, but most of all it is essential to align the new cohesion policy to the "Europe 2020" strategy. The 2014-2020 programming period, in fact, it provides the general framework for investment (Common Strategic Framework) to achieve the objectives of "Europe 2020", mobilizing up to 351.8 billion of Euros for the regions, the Eu cities and the real economy (as shown in Chart 1). Cohesion policy is also an attractor of additional public and private funding, for this reason, the impact of cohesion policy for the period 2014-2020 amounting to EUR 500 billion approximately.

    Chart 1: Funds of Cohesion Policy from 2014 to 2020

    Source: European commission

    The investments planned by the new programming will contribute to the development in several economic key sectors, such as education, employment, energy, environment, internal market, research and innovation.

    To do this, cohesion policy establishes 11 thematic objectives to support growth for the period 2014-2020:

    1. Strengthening research, technological development and innovation;

    2. Enhancing access to, and use and quality of, information and communication technologies;

    3. Enhancing the competitiveness of SMEs;

    4. Supporting the shift towards a low-carbon economy;

    5. Promoting climate change adaptation, risk prevention and management;

    6. Preserving and protecting the environment and promoting resource efficiency;

    7. Promoting sustainable transport and improving network infrastructures;

    8. Promoting sustainable and quality employment and supporting labour mobility;

    9. Promoting social inclusion, combating poverty and any discrimination;

    10. Investing in education, training and lifelong learning;

    11. Improving the efficiency of public administration.

    The investments from the European Regional Development Fund (ERDF) finances all 11 targets, but those, from 1 to 4, are the main investment priorities. The main priorities of the European Social Fund (ESF) are the targets of 8 to 11, but the fund also finances from 1 to 4. Finally, the Cohesion Fund targets finances from 4 to 7 and 11.

    Cohesion Policy and Italy

    The partnership agreement between Italy and the European Commission was approved 29 October 2014 and defined the strategy for the use of structural funds and European investment in the next seven years of the programming of the cohesion policy. The italian priorities identified in the partnership agreement include: the development of a business environment for innovation, infrastructure construction, high-performance and efficient management of natural resources, the increased level of participation in the labor market, the promoting social inclusion and improving the quality of human capital, the quality, effectiveness and efficiency of public administration.

    During 2014-2020 period, Italy will manage over 60 Regional Operational Programmes and 14 National Operational Programmes for about 44 billion euro. This amount makes Italy the second Member State for the EU budget, after Poland (as shown in Chart 2).

    Chart 2: Budget allocation by Member State

    Source: European Commission

    Of these 44 billion total, 32.2 billion derived from the Cohesion Fund (20.6 billion from the ERDF - European Regional Development Fund, 10.4 billion from the ESF - European Social Fund, 1.1 billion for the European territorial cooperation and 567 mln of YEI, the youth employment initiative) which is going to add up to 10.4 billion EAFRD - European Agricultural Fund for rural Development and to the 537 million of the EMFF - European maritime and fishing.

    The cohesion funds will be distributed among the regions, with a greater impact on the most disadvantaged areas:

    • 22.2 billion euro to the less developed regions (Campania, Puglia, Basilicata, Calabria and Sicily);

    • 1.3 billion Euros to the transition regions (Sardinia, Abruzzo and Molise);

    • EUR 7.6 billion with more developed regions (Valle d'Aosta, Piedmont, Lombardy, Liguria, Veneto, South Tyrol, Trentino, Friuli-Venezia Giulia, Emilia Romagna, Tuscany, Marche, Umbria and Lazio).


    E (2010), “Bilancio della strategia Europa 2020 per una crescita intelligente, sostenibile e inclusiva”, Comunicazione della Commissione al Parlamento Europeo, al Consiglio, al Comitato Economico e Sociale Europeo e al Comitato Delle Regioni, Bruxelles, http://ec.europa.eu/europe2020/pdf/europe2020stocktaking_it.pdf

    Commissione europea (2012), “Elementi di un quadro strategico comune 2014 - 2020 per il Fondo europeo di sviluppo regionale, il Fondo sociale europeo, il Fondo di coesione, il Fondo europeo agricolo per lo sviluppo rurale e il Fondo europeo per gli affari marittimi e la pesca”, documento di lavoro dei servizi della Commissione, Bruxelles

    Commissione europea DG Comunicazione e Informazioni per i cittadini (2014), “Politica regionale”, paper, Lussemburgo

    Commissione Europea, website, http://ec.europa.eu/

    Dipartimento per lo Sviluppo e la Coesione Economica, “Accordo di partnernariato dell’Italia 2014-2020”, http://www.dps.gov.it/it/AccordoPartenariato

    Dipartimento per lo Sviluppo e la Coesione Economica, website, http://www.dps.gov.it/

    Gazzetta Ufficiale dell’Unione Europea, “Regolamento n. 1303/2013 del Parlamento europeo e del Consiglio”, 17 dicembre 2013, http://eur-lex.europa.eu/legal-content/IT/TXT/PDF/?uri=CELEX:32013R1303

    Parlamento europeo (2013), “2014-20 Multiannual Financial Framework (MFF)”, http://www.europarl.europa.eu/RegData/bibliotheque/briefing/2013/130627/LDM_BRI(2013)130627_REV1_EN.pdf

    Unione Europea, website, http://europa.eu/ http://ec.europa.eu/regional_policy/en/faq/#1

    Editor: Assonebb 2018


    A combined-cycle gas turbine power plant consists of one or more gas turbine generators equipped with heat recovery steam generators working through two different flows, which are able to run in two different thermodynamic cycles.
    This kind of plant is composed by a turbogas unit, a vapour generator and a vapour turbine. The gas, once discharged from the turbogas unit, is sent into the vapour generator where it cools down. The energy released in the vapour generator is utilised to produce vapour that is then used to fuel the vapour turbine. Once the energy gets into the vapour turbine, the turbogas alternator transforms it into electrical energy.
    Editor: Claudio DICEMBRINO
    © 2009 ASSONEBB


    Commissione Nazionale per le Società e la Borsa is the independent supervisory authority for the Italian financial assets market whose aim is to protect investors and the efficiency, transparency and development of the market. The Commission was founded in 1974 (Law no. 216 of 7 June 1974) and became fully independent in 1985 (Law no. 281). The responsibilities of the Commission have evolved over time in order to safeguard investments with respect to changes in financial markets.
    Changes to legislation with regard to safeguarding investments have given the Commission an increasingly important role due to the high volume traded on today’s markets.
    Informally, the Commission provides non-binding indications on market procedures. The Commission periodically issues publications on its activities such as: i) the Bulletin (ii); the Consob weekly newsletter (Consob Informa), in which a summary of the main decisions and events involving the Commission
    during that particular week is given; iii) the annual report; and iv) Financial papers.
    Moreover, since January 2001, an electronic version of the Bulletin has been issued. It is divided into the following sections: i) "Actions and decisions", and ii) "Listing and registrar". The Bulletin contains a full version of the Commission’s decisions and events listed in the weekly newsletter. The Finance Papers are the means to propagate issues that the Commission feels are important to the market. All of these accounts come from research projects produced and promoted by CONSOB, institutional interventions and conference proceedings.
    Ciciretti, R., Trenta, U., 2006, La Borsa Europea. Una Visione d’Insieme, in Rapporto sul Sistema Finanziario Italiano 2006, ARACNE, Roma.
    Editor: Rocco CICIRETTI
    © 2009 ASSONEBB

    Link: www.consob.it


    It is the exchange where commodities are traded. Several raw materials are traded on the commodity exchange through standardized contracts. These contracts are traded physically (direct exchange) or through the exchange on the derivatives market. Commodities are classified into three categories: softs (coffee, sugar, tea, cocoa, spices, gum, cotton, wool, rice, oats, timber, meat, livestock, corn), metals (gold, silver, platinum, rhodium, ruthenium, tin, pounce, zinc, aluminium, and nickel), energy sector (gas, oil, and their derivatives). Other commodities are precious metals, as old coins, construction materials, IPOs and software.
    These materials are exchanged over the commodity exchanged through standardized contracts. These exchanges take place physically (direct exchange) or through an exchange over the derivatives market.
    Editor: Claudio DICEMBRINO
    © 2009 ASSONEBB



    The EU and the US have recently reached an agreement on rules governing the complex derivatives market, which are considered the origin of the financial crisis that caused the Lehman Brothers collapse in September 2008.

    Estimates of the value of the global derivatives market are around $630 trillion (BIS data): “Our discussions have been long and sometimes difficult, but there have always been close, continuous and collaborative talks between partners and friends”- said European commissioner responsible for internal market and services, Michel Barnier.

    The agreement provides reciprocity rules between the European Commission and the American equivalent, the Commodity Futures Trading Commission (CFTC); its president Gary Gensler stated that “We’ve taken another significant step in our mutual journey to bring transparency and lower risk to the global swaps market”, adding that “jurisdictions and regulators should be able to defer to each other when it is justified by the quality of their respective regulation and enforcement regimes”.

    This relevant implementation follows the G-20 commitment “to lower risk and promote transparency in the Over the Counter (OtC) derivatives markets, which were at the heart of the financial crisis” the agreement was reached at expiration of the exemptions of American rules for European operators. This has occurred in a period of tensions between the EU and the United States.

    Negotiations for the free trade agreement started on July 08, 2013 in Washington, a crucial step toward the global crisis solution and for a greater transparency of finance. "The rules in place pursue the same objectives and generate the same outcomes - says a note from the CFTC - as a result of the joint collaborative effort, in many places, final rules are essentially identical".

    From a technical profile, derivatives are complex financial instruments disclosed in the financial markets since the early 2000s; they conquered an absolutely central role in the entire global economy, with disastrous effects. Derivatives are financial instruments that have no intrinsic value, but derive their values from something else such as an asset, an index, or an interest rate: the underlying.

    Derivatives are widely employed for financial speculation in global financial markets. The dangers of derivatives is that these financial instruments are traded in the markets by an indefinite number of “financial betters” that do not necessarily hold the underlying in portfolio, they just look for easy profits.

    Editor: Chiara OLDANI


    Competitive and Innovation Framework Programme, functioning for the period 2007-2013, "supports innovation activities, provides better access to finance and delivers business support services in the regions" with a budget of € 3.621 millions. The CIP is divided in three operational programmes: The Entrepreneurship and Innovation Programme (EIP), the Information Communication Technologies Policy Support Programme (ICT-PSP) and the Intelligent Energy Europe Programme (IEE).
    The EIP aims to create framework conditions that promote innovation and allow bringing ideas to market, developing new forms of business support, for SMEs and especially start-ups, focusing on a better access to finance thanks to several schemes of financial instruments as equity finance and guarantee facilities. All the CIP financial instruments are implemented for the Commission by the European Investment Fund (EIF) on a trust basis.
    Several initiatives follow the purpose about boosting innovation:
    PRO INNO Europe ® , in favor of policy cooperation, with the ultimate objective to optimise and leverage complementarities among the various innovation support measures in Europe, at regional, national or European level. The integrated policy approach includes policy analysis, offering benchmarking of innovation performance, observing major innovation trends, matching world-wide knowledge and contacts to facilitate dialogue among public authorities, industry and academia. More targeted to policy cooperation, there are activities as stimulating transnational innovation policy cooperation and giving incentives for joint innovation actions.
    Europe INNOVA aims to create partnership platforms among European innovation professionals, while IPR helpdesk should give assistance on intellectual property issues for EU funded projects. Enterprise Europe Network function is providing information (that is, about market opportunities and European legislation), guidance (that is, finding business partners through technology cooperation database) and training (that is, developing research capacities through synergies among different research actors) on the benefits to SMEs and business support providers in Europe.
    The EIP is particularly targeted to eco-innovation; specific funds are oriented on the creation of innovative products and services preventing pollution and stimulating a responsible use of natural resources; as an example, a support is given to the first application of the best eco-innovative products helping reduce critical barriers. Importance of networks is remarked, especially between national and regional actors to allow exchanging best practice schemes. In add to this a large amount of the EIP initiatives are focused on encouraging entrepreneurship culture in Europe, as the Erasmus for Young Entrepreneurs and the European SME Week.
    The ICT-PSP promotes the diffusion of the ICTs and the exploitation of digital content across Europe, by governments, citizens and particularly SMEs, helping decrease barriers as lack of interoperability and market fragmentation. ICT-PSP pilot actions involve several areas, as ICT for health, ageing and inclusion, digital libraries, ICT for improved public services, ICT for energy efficiency and smart mobility, multilingual web and Internet evolution. Networking to share experiences and monitoring the Information Society progresses are also supported.
    The IEE encourages the dissemination of clean and sustainable solutions following three main objectives, that include diffusion of energy efficiency and rational use of natural sources, expanding the application of renewable energy sources and stimulating energy diversification, boosting energy efficiency. The programme aims to create better conditions in order to reach the Europe 2020 targets for a more sustainable energy future in areas as transports, energy-efficient buildings, industry, consumer products. A large part of the programme is financed by annual calls for proposals.


    Editor: Marianna RONCHINI


    The Office of the Compliance Advisor Ombudsman (CAO) is the independent recourse mechanism for projects supported by the International Finance Corporation (IFC) and Multilateral Investment Guarantee Agency (MIGA). The headquarter of the CAO is based in Washington, DC (USA).The two sister agencies of the World Bank, the IFC and MIGA established the CAO in 2000. In addition to auditing compliance with environmental and social safeguard policies, CAO also carries out an ombudsman role by attempting to mediate disputes between companies, governments, and civil society organizations.CAO's small but diverse team includes professionals from the private and nonprofit sectors with experience in dispute resolution that works in an independent and impartial way. CAO reports direct to the President of the World Bank Group.

    Editor: Giovanni AVERSA

  • conglomerate

    Corporation composed of companies in a variety of businesses.


    A mechanism which publicises post-trade information as to the prices and sizes of transactions in financial instruments which are executed on organised venues.

    ©2012 Editor: House of Lords


    The CES utility function applies to consumer theory the same functional form proposed by K.J. Arrow 1 to describe a system of consumer preferences characterized by an elasticity of substitution between differentiated goods (the function’s arguments) which is constant. In general, this kind of utility function is used in economic theory as a function of the aggregate consumption of a given economy. Analytically, the level of utility U associated to the consumption of the n-goods expressed by a CES utility function is given by:

    Deriving the utility function with respect to the quantity of good i consumed, we obtain the marginal utility with respect to :

    The marginal rate of substitution (MRS) between good i and good j is equal to the ratio between the marginal utility associated respectively to good i and good j:

    The elasticity of substitution between the two goods ? is equal to the inverse of the elasticity of the MRS with respect to the ratio between the level of consumption of good i and good j . It is also equal to the logarithm of the ratio between the two goods

    Divided by the logarithm of the MRS:

    As supposed, the elasticity of substitution ?

    is equal to a constant term depending on the value of .


    1.Arrow, K.J., H.B. Chenery, B.S. Minhas, and R.M. Solow. 1961. "Capital-Labor Substitution and Economic Efficiency," Review of Economics and Statistics 53, (August), pp. 225-251.

    Editor: Bianca GIANNINI
    © 2011 ASSONEB


    It refers to fixing criteria for forward-looking values, not considering inflation.
    Editor: Carmen NOTARO
    © 2010 ASSONEBB

  • CONTAGION (Encyclopedia)

    Since the Asian crisis in 1997, the term contagion has been used to refer to the spread of financial turmoil across countries. Among economists, there is little agreement on what exactly the term contagion entails. The exam of the literature provides three prevailing definitions1:
    1. Fundamentals-based contagion (interdependence): the contagion is the transmission of global or local shocks across countries through fundamentals (spillover effects). According to this definition, contagion could arise also during stable periods (Calvo and Reinhart (1996), Pristker (2000));
    2. Excess of co-movements: the contagion is the transmission of global or local shocks across countries through mechanisms that do not include fundamentals. This type of contagion is considered to be caused by “irrational” phenomena, such as financial panic, herd behaviour, increase in risk aversion or a loss of confidence (Claessens, Dornbusch, Park (2001), Jeanne and Masson (1998));
    3. Shift contagion: the contagion is a significant change in cross-market linkages after a shock in an individual country (or group of countries). (Forbes and Rigobon (1998)).
    The transmission mechanisms underlying the three definitions could be represented by the following model, partly taken from Forbes and Rigobon (1999), Pristker (2001) and Pericoli and Sbracia (2001):

    is the stock price in country i at time t,
    is the vector of stock prices in countries different from I ,
    is a common aggregate shock linked to fundamentals, and
    is an idiosyncratic and independent shock.
    On the basis of this equation, it is possible to show how transmission mechanisms work according to the three different definitions of contagion:
    the first transmission mechanism of aggregated or specific shocks is measured by and , and the direct effect of these shocks on each country i is embodied respectively by and .
    The second transmission mechanism is measured by the correlation of idiosyncratic shocks of different countries , it is interpreted as contagion because there is excess of co-movements that cannot be explained by fundamentals;
    the third transmission mechanism is measured by a shift in cross-market linkages and therefore is embodied in changes in both parameters and (i.e. structural break).
    The first definition, as noticed by Claessens, Dornbusch and Park (2001), should not be properly considered as contagion. Therefore, it reflects the interdependence between countries that exists in each state of the world. According to the interdependence definition, global or local shocks are transmitted internationally by financial or real channels2.
    The second definition, as noticed in Pritsker (2001)3, presents two orders of problems: the first is that the finding of contagion can always be questioned on the basis that the correct set of fundamentals was not controlled for (i.e. omitted variables problem). The second is related to the possibility that contagion occurs through the channel that Kodres and Pritsker (2000) refer to as "cross market hedging".
    In the cross market hedging models, some operators receive information (information shock) about country-specific components. After the shock, the informed operators will optimally alter their portfolio for the country where the shock occurred. But they will also hedge the change in their macroeconomic risk exposures by rebalancing in other countries. The rebalancing transmits the idiosyncratic shock across markets, generating correlation in short-run stock returns.
    The third definition "not only clarifies that contagion arises from a shift in cross market linkages, but it also avoids taking a stance on how this shift occurs". As explained in Forbes and Rigobon (1999), the adoption of the shift contagion definition provides three types of advantages.
    Firstly, the test for shift contagion is a test of the effectiveness of international diversification in reducing the portfolio risk during a crisis. Indeed, if shift contagion occurs after a negative shock, it would undermine much of the rationale for international diversification.
    Secondly, the definition is useful in evaluating the role and potential effectiveness of international institutions and bailout funds. If shift contagion occurs the transmission mechanisms of the financial crisis do not involve the macroeconomic fundamentals. Thus there will not be any endogenous adjustment process and the intervention of the international organisation is necessary. On the contrary, if we are not in the presence of shift contagion the intervention of the international organisation could be an obstacle to the endogenous adjustment process of the economies.
    Thirdly, tests based on this definition provide a useful method to classify theories as those that entail a change in propagation mechanisms after a shock (crisis-contingent theories) versus those which represent a continuation of existing mechanisms (non-crisis-contingent theories).
    1Pericoli and Sbracia (2001) include five different definitions, the two missing in this paragraph are i) "contagion is a significant increase in the probability of a crisis in one country conditional on a crisis occurring in another country" and ii) "contagion occurs when volatility spills over from the crisis country to the financial markets of other countries".
    2The others two categories occur when the transmission of a crisis cannot be linked to observed changes in fundamentals and they result solely from the behavior of investors or other financial agents.
    3"I prefer a broad definition because the economics profession will probably never reach agreement on the appropriate set of fundamentals which are needed to make a narrow definition operational"

    Calvo S. and C. Reinhart, (1996), Capital flows to Latin America: is there evidence of contagion effects?, World Bank Policy Research W.P. 1619
    S. Claessens, R. Dornbush and Y.C. Park (2001), "Contagion: Why Crises spread and how this can be stopped", in International financial contagion ed. by S. Claessens e K.J. Forbes, Klwer Academic Publishers, Boston.
    Forbes K. and Rigobon R., (1999), "No contagion only interdependence: Measuring stock market co-movement", NBER WP, n.7267, July.
    Forbes K. and Rigobon R., (2001), Measuring contagion: Conceptual and empirical issues, in International financial contagion ed. by S.Claessens and K.J. Forbes, Klwer Academic Publishers, Boston.
    Kodres L.E. and M. Pritsker, (1998), A rational expectations model of financial contagion, Board of Governors of the Federal Reserve System, Finance and Economics D.P. 48
    Masson P. (1998), "Contagion: Monsoonal effects, Spillovers, and jumps between multiple equilibria", IMF WP 98/142, Washington.
    Masson P., (1999), Contagion: macroeconomic models with multiple equilibria, Journal of International Money and Finance 18, 587-602
    Pericoli M. and M. Sbracia, (2001), A primer on financial contagion Temi di discussione Banca d’Italia, n. 407, June.
    Pritsker M., (2000), The channels of financial contagion, in International financial contagion, edited by Claessens S. and Forbes K., Kluwer Academic Publishers, Boston/Dodrecht/London.

    Editor: Roberta DE SANTIS
    © 2009 ASSONEBB


    Within the commodity markets, this term is widely used to identify prices for delivering closer and at a lower price with respect to those contracts with longer time deliveries. The origin of this term comes from the London Stock Exchange. Contango is the abbreviation of CONTinuation ANd GO. In the energy market context, this term is used to identify a situation where there is a bigger supply than demand and this makes a price reduction possible. This term is used in the oil sector even if it is applied to other commodities and in energy markets. In a situation without oil demand and supply shocks, the market might tend to a contango situation. The contrary of contango is backwardation.
    Editor: Claudio DICEMBRINO
    © 2009 ASSONEBB

  • Contingent Convertible Bond (Co. Co. Bond)

    It is an hybrid bank bond, that is convertible into shares, the option is not exercised by the lender (as in common convertible bonds), but it is mandatory to the occurrence of predetermined conditions. Co. Co. Bonds are converted into shares only if the financial conditions of the issuing bank. Following Basel III - Iinternational Regulatory Framework For Banks, these bonds are converted if the ratio of primary capital (consisting of the sum of the share capital plus profits and reserves less losses) and the total risk-weighted assets of the issuing bank falls below the threshold of 6%.


    De Spiegeleer J., Schoutens W., Van Hulle C., The Handbook of Hybrid Securities: Convertible Bonds, CoCo Bonds and Bail-In, WILEYFINANCE, 2014.


    Editor: Giuliano DI TOMMASO

  • Continuous Trajectories Process

    It is a Y(t) normally distributed process with mean and variance given by:

    defined along the time axis t [0, + ?) which can be divided into an arbitrarily large number of intervals in which the increments of the process are independent and identically distributed. Therefore, the knowledge of all the possible increments caused by the process up to the instant t is equal to the knowledge of the trajectory up to t.


    AA.VV., Matematica Finanziaria, Monduzzi Editore, 1998.
    Grinstead M. C., Snell J. L., Introduction to Probability, American Mathematical Society, 1997.

    Editor: Giuliano DI TOMMASO - ASSONEBB


    It refers to the variation in duration of a bond if we change the yield of the bond (i.e., first derivative of duration with respect to yield). It gives the entity of price movement if interest rates change. If a bond has positive convexity, its price will increase in case of an interest rate upward movement more than it would decrease in case of an interest rate downward movement. In option theory, convexity is represented by gamma.
    Editor: Ugo TRENTA
    © 2009 ASSONEBB


    Bonds (above) issued by a corporate entity.

    ©2012 Editor: House of Lords


    It is the complex system of rules concerning firms, their management and control. It is the product of rules, tradition, behaviours, and uses translated into law. It is not a global framework, since it varies across countries and regions. It is composed of statutory rules, rules of law, business ethics and common principles. In Italian the term corporate governance is somehow vague, since it is the product of diverse juridical sources, both national and supranational. The Testo Unico per la Finanza (TUF) is the most recent code concerning corporate governance, and in its version dated 1999 it considers the rights of minority shareholders, the transparency of listed corporates, or those raising households savings, the reform of power of auditors, following the international principles on the issue. The central part of the discussion about the corporate governance refers to the firm’s bodies, duties and responsibilities. Other rules regarding corporate governance are present in the code of self-discipline written by the Committee for Corporate Governance of Listed Firms that follows EU criteria. It deals with rules on the board of directors, its chief, auditors, relationships among shareholders, especially majority and institutional. It considers also the settlement of sub-committee that should deal with the members of the board of directors, and their salary, stock options and benefits.
    After the 1999 edition, the code of self-discipline has been modified and updated. Its second edition is dated 2006, modified in 2010 only with respect to art.7, now numbered art.6, that deals with the issue of the salary, stock options and benefits of members of the board and high level directors. The latest updated has been presented in Milan on Dec. 5th 2011 by the Committee of Corporate Governance. The new code follows the international best practices, and introduces the “comply or explain” principle according to which firms should explain the reasons at the base at their not complying to the code rules. In particular, the modification introduced in this last edition consider: (i) the role and composition of the Board of Directors, especially with respect to independent members; (ii) duties and working rules of internal committee to the Board; (iii) system of internal control and risk management; (iv) auditors and its vigilance, also prehemptive; (v) relationship between shareholders and managers, and initiatives that promote the exercise of right of the least.
    Editor: Marco Monaco Sorge


    1. Definition
    The expression Corporate Social Responsibility (CSR) describes the relation between firms, understood as major economic actors, and society. Even though, in the last decades, the growing interest towards these issues has opened the door for a great deal of studies and for an intense international debate, at present a univocal definition of CSR is still missing ( Correll 1999; Snider et al., 2003; and Dahlsrud 2008). However, it might be useful to reconstruct briefly the debate regarding CSR in order to clarify some common characteristics deriving from such different positions.
    When in the Sixties people started to discuss about social responsibility and the relations between market and society, the economist Milton Friedman defended free market by asserting that “there is one and only one social responsibility of business … to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engage in open and free competition without deception or fraud (Friedman 1962)” 1.
    Friedman’s thesis, defined as “moral minimalism” (Friedman and Werhane 2005), gave rise to a wide literature in business ethics, regarding the extension and the content of economic subjects’ social responsibility. In general, critics of Friedman’s position believe that corporations ought to relate to society through more than just marketplace transactions and serve a wider range of values than the traditional economic values that are prevalent in the marketplace.
    However, as noted by Freeman and Werhane (2005) since their very first studies, the central question of the research on “social responsibility” is concerned with the impossibility of splitting the social aspect from the economic one. Actually, critics of Friedman’s moral minimalism and of supporters of the free market would not have been able to underestimate the importance of the economic aspect. To this end, in 1979, Carroll identified four components of CSR: economic, legal, ethical, discretionary and philanthropic. According to this framework, Friedman’s thesis can only partially explain the content of CSR.
    From a theoretical point of view, however, the answer to moral minimalism was formulated only in the Eighties thanks to Friedman’s stakeholder approach (Evan and Freeman 1988; Freeman 1994). This new approach replaced the minimalist idea according to which the firm must be responsible only towards shareholders. According to this approach, the corporation has a broader constituency and, consequently, it is responsible towards a wide group of stakeholders, which includes suppliers, customers, shareholders and the local community. In Freeman’s opinion, this group includes all individuals or groups who have a legitimate interest in the activities of a firm (Freeman 1994).
    In the last two decades, scholarly works on CSR have offered a wide range of theories and approaches, from the Integrative Social Contracts theory to Corporate Citizenship and the theory of Corporate Sustainability. The following paragraphs are aimed at offering a general introduction on the development of the concept of CSR. They also offer a brief description of the main contemporary ethical theories on CSR2.

    2. Evolution of the CSR notion
    The concept of CSR was born in the United States in the second half of the last century. Generally speaking, Bowen’s text, Social Responsibilities of the Businessman of 1953, is considered as the first work where it is possible to find the ethical structure of the contemporary notion of CSR. Bowen, considered by many scholars as the “father of CSR” (Carroll 1999, Garriga and Melé 2004), refers to “the obligations of businessmen to purse those policies, to make those decisions or to follow those lines of action which are desirable in terms of the objectives and values of our society” 3.
    Some years later, following Bowen’s footsteps, a wide literature on the subject of social responsibility was developed. Nevertheless, in this phase, the corporation wasn’t considered as the main subject of research yet; a great deal of those years’ studies, indeed, show that the businessman is the subject who is socially responsible for one’s actions, while the main object of research concerns the relations between business and society. In 1960, Keith Davis, linked social responsibility to those businessmen’ s actions and decisions that are not tightly linked to their economic interest. During the same period, another author, William Frederik, argued that social responsibility implicitly asks businessmen to consider society’s needs and demands in their transactions (quoted in Carroll 1999, p.271). Some years later, in 1967, the firm was associated for the first time to society, in terms of social responsibility, in Clarence C. Walton’s work, Corporate Social Responsibilities. According to Walton, the notion of social responsibility recognizes the deep link existing between corporation and society and imposes on businessmen to consider this relation in transactions (quoted in Carroll 1999, p.272).
    In the Seventies, the notion of social responsibility became more specific and the role of the corporation, understood as an economic actor responsible towards society, was broadened; therefore, these were the years that saw the passage from social responsibility to CSR. In 1976, H. Gordon Fitch defined CSR as the ability of the enterprise to solve social problems; in this sense, he emphasised the distinction between social problems and economic issues (quoted in Carroll 1999, p.281).
    The link between corporations and society was also developed in 1979, when Carroll gave a definition of CSR that went beyond the mere idea of profit and of obedience to state laws.
    According to Carroll, “the social responsibility of business encompasses the economic, legal, ethical and discretionary expectations that society has of organizations at a given point in time” (Carroll 1999, p.283).
    However, twenty years later, the notion of CSR was revised from a conceptual and theoretical point of view. Starting from the Eighties, CSR became the object of interest for economic and social sciences; in particular, the firm and all the questions linked to social responsibility assumed a central position in business ethics. Moreover, the most important empirical studies aimed at testing the performances of corporate responsibility date back to the Eighties and the Nineties. The first and most relevant normative reply is the stakeholder theory, formulated for the first time by Freeman at the very beginning of the Eighties.

    3. Stakeholder approach
    The notion of stakeholder is one of the most prominent contributions to recent business ethics. Since the introduction of this concept by Edward Freeman in 1984, a concern for the interests of all stakeholder groups has become a widely recognized feature of ethical management and it has been employed in order to give an explanation to the general idea, supported by numerous economists, according to which the main responsibility of businessmen was tied to profit maximization. Although the stakeholder approach has been developed in various ways, it has been expressed most often in the moral prescription that managers, in making decisions, ought to consider the interests of all stakeholders (Freeman and Werhane 2005).
    “The true purpose of the firm is to serve as a vehicle for coordinating stakeholder interests. It is through the firm that each stakeholder group makes itself better off through voluntary exchanges. The corporation serves at the pleasure of its stakeholders, and none may be used as a means to the ends of another without full rights of participation in that decision”. 4
    Generally speaking, stakeholders could be defined as any group or individual who can affect or is affected by the achievement of a corporation purpose, but also as people holding specific rights (Freeman and Werhane 2005) 5. In this sense, in order to determine how a firm should behave in specific situations, it is necessary to identify the parts that interact with the firm and all the interests involved. Normally, the stakeholder group includes workers, managers, shareholders, consumers, customers and the local community. The role played by stakeholders is double: on one hand, their claims are restrictions to business legitimacy, in the sense that they indicate the purpose and the priority of the firm itself; on the other hand, the focus on stakeholders implies a relation of responsibility and mutual trust between the different stakeholders. To this end, some authors point out that the relations established between stakeholders introduce additional obligations regarding the business organization itself (Freeman and Werhane 2005). For instance, a firm has some duties towards its workers as they are both workers and human beings. Workers, on the contrary, have some obligations that derive from the role they play within the firm, in addition to the general moral obligations that bind the relations between individuals and between workers and firms (Freeman and Werhane 2005). The stakeholder theory, thus, develops a thick grid of relations based on trust that binds the firm towards its stakeholders and vice versa, both inside and outside the firm.
    In literature, it is possible to distinguish at least two critical positions in relation to the stakeholder theory. According to some authors, the stakeholder theory risks not solving the moral problem that is bound after all to the firm’s activity. In other words, it would be possible to think of a firm that, although respecting the bonds between all stakeholders, practices economic activities that are not acceptable from a moral point of view. Actually, the stakeholder theory, since its very first formulations, has required a reference to Kant’s moral theory. In this perspective, since the relations between stakeholders are relations between individuals or groups of individuals, it is supposed that each decision they take for their own interest should be bound to an equal respect towards people and everybody’s rights. Moreover, in an honest agreement scheme between stakeholders, individuals should keep some kind of independence when they judge the activities of the firm from an ethical point of view (Freeman and Werhane 2005, p.562).
    The second criticism, in one way linked to the first one, focuses on the fiduciary relation between stakeholders 6. According to Goodpaster, for instance, stakeholders’ multi-fiduciary approach does not consider the relational differences existing between the different subjects. To be more precise, the relation between the managers and the shareholders of the firm would be different and stronger than the one between managers and other stakeholders and, thus, in case of conflict, the first relation would take over the other ones. (Goodpaster 1991). Actually, in addition to Kant’s theoretical structure, the stakeholder theory introduces a normative scheme aimed at removing the possibility of any of the conflicts mentioned above. In 1994, Freeman and Evan formulated a theory based on Rawls social contract theory (Freeman and Evan 1994; Rawls 1971). According to this new formulation, the equality principle is guaranteed by Rawl’s “veil of ignorance”. In other words, stakeholders do not know exactly “their class position or social status nor do they know their fortunes in the distribution of natural assets and abilities within the firm” (quoted in D’Orazio 2003, p.22).
    This system brings the two philosophers to think that all stakeholders are assigned the task of choosing, from a series of alternatives, the conception of justice that best advances their interests in establishing conditions that enable them to effectively pursue their final ends and fundamental interests. The stakeholders’ theory can be considered as the most relevant reply to the moral minimalism of Corporate Social Responsibility, which is typical of the economic approach. As it has already been said, this theory has the merit of introducing the issue of the social impact of the firm’s economic activities without underestimating the importance of economic issues of profit growth and development of the firm. This theory, indeed, is based on the idea that the firm gives some value to stakeholders, just like each group of stakeholders attributes value to the firm, and this mechanism of mutual exchange enables the firm, conceived as an organization, to grow in a safe way.

    4. Integrative Social Contracts Theory
    Apart from the stakeholders theory, another approach to CSR has recently drawn the attention of the international debate, the Collective Social Contracts Theory. In this respect, the reference to contractarianism is evident; however, in such a context, contractarian theory is put forward again in order to explain and justify the “status” of firms within society rather than firms’ setting up rules (Freeman and Werhane 2005 p. 559).
    Donaldson was the first to consider the relation between market and society in terms of a social contract (Donaldson 1982; quoted by Freeman and Werhane 2005 and Garriga and Melé 2004). According to the American philosopher, there would be a tacit social contract between society and the firm. To be more precise, when a firm is authorized by society to act in a certain community, it adopts some obligations towards it; these obligations form the basis of the contract between firm and society (Freeman and Werhane 2005 p. 559).
    If on the one hand society engages in guaranteeing the firm’s economic free will, on the other the firm has to respect society’s expectations, that, in Donaldson’s opinion, concern the improvement of the general welfare through “the satisfaction of consumer and worker interests” (Donaldson 1982, p.44ff). The contractarian idea carried out by Donaldson had a great impact on CSR literature, because it offered a theoretical structure to the idea of corporate moral responsibility 7. However, his proposal did not consider the internal relations of the firm, namely stakeholders, since it focused on the firm’s obligations outwards, that is to say society as a whole.
    In 1994, Donaldson and Dunfee resumed the social contract theory applied to the relation between society and firms in order to offer a more mature version, the Integrative Social Contracts Theory. This new theory aimed to integrate the first proposal of 1982 and to go beyond its limits. This goal was reached through the decomposition of the agreement between society and firms in two different contractarian phases: the first general phase, the macro-social contract, guarantees the moral standard for each social negotiation; while the second one, the following micro-social contracts, guarantees the autonomy of the members of the single economic communities in specifying one’s internal rules of behaviour. According to the two philosophers, it is possible to believe that a community of rational individuals would accept a hypothetical general macro social contract that would preserve a significant moral free space for individual economic communities, where it is possible to generate one’s norms of economic behaviour through micro social contracts (Donaldson and Dunfee 1995, p.95-6). As explained before, in the scheme of the integrative social contracts theory, the macro social contract provides a moral standard that is valid for all the ensuing agreements. However, the content of its general norms has not been clearly defined yet. According to Donaldson and Dunfee, it could include sufficiently general and universal principles such as the respect of contracts, good faith, the respect of individuals’ fundamental rights and the right to non-discriminatory treatment, etc. (Donaldson and Dunfee 1995, p.95-6).
    Even if not very clear about the content of general moral norms, the idea of a moral standard, even if still minimum, proposed by the ICST offers an important contribution to the literature on CSR. The macro social contract, indeed, guarantees the justification of CSR on an international scale, though respecting cultural or organizational differences existing in different territorial contexts.

    5. Corporate Citizenship
    Finally, a recent development of CSR is that of corporate citizenship. Although the idea of considering the firm as a citizen at the same level as other individuals has existed in literature since the Seventies (Davis 1973), as it was noted by Garriga and Melé, this concept has only recently become more relevant due to a series of factors, such as the crisis of the welfare system, the globalisation phenomenon and its deregulation, which have contributed to make multinational firms become stronger than whole countries from an economic as well as social point of view (Garriga and Melé 2004, pp.56-57).
    This approach is based on the analogy with the concept of citizenship, valid for all citizens (Valor 2005). However, the concept of citizenship applied to firms, and all the obligations and rights that are mutually related to it, is confined to the economic activities carried out by the firm within a determined social and political community. In this sense, the idea of citizenship has the purpose of emphasizing the firm’s duty to support and cooperate with the government for the general welfare and social justice (Freeman and Werhane, p.563).
    Although an univocal definition of corporate citizenship does not exist in literature, it is possible to find some elements, shared with several studies, among which the emphasis on the idea of responsibility towards the territorial community where the firm acts and the attention towards environmental issues (Garriga and Melé 2004).
    1Quoted in D’Orazio (2003).
    2The theories here examined are the Stakeholder theory, the Integrative Social Contracts Theory and the Corporate Citizenship theory. As far as Sustainability Theory is concerned, see Sustainability.
    3Quoted in Carroll (1999:270) and Freeman (2005:553).
    4In Evan and Freeman (1988/1993, p.262).
    5As it was noted by D’Orazio, in this theory, stakeholders are considered as “moral subjects holders of rights” (D’Orazio 2003, p.14).
    6This theory has been discussed in D'Orazio (2003).
    7Regarding the meaning of corporate moral responsibility, with the corporation conceived as a moral agent, see also paragraph 3.1 of Donaldson 1982. The analysis of the firm in business ethics can be found at the entry Business Ethics.
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    Snider, J., Hill, R.P., and Martin, D. 2003. "Corporate Social Responsibility in the 21st Century: A View from the World's Most Successful Firms " Journal of Business Ethics 48 (2):175-87.
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    Editor: Valentina GENTILE
    © 2009 ASSONEBB


    1. Origin of the concept of Sustainability

    The concept of sustainability has recently appeared in the international academic debate. This concept, taken from the studies on environmental ethics and ecology, is more and more often associated to business, drawing the attention to the impact of economic activities on the planet’s natural resources.
    The term sustainability derives from the verb “to sustain”, that is “to maintain”, “to endure” (Bologna 2008). In ecology, the concept of sustainability was born in order to put a stop to the policies of economic development, which were adopted above all in more industrialized countries during the last century. In this perspective, the first supporters of “sustainable development” had the objective of fixing some limitations to socio-economic development with reference to the planet’s ecological balances.

    The concept of sustainable development emerged during the conference of the United Nations that was held in Stockholm in 1972 regarding human environment, with the aim of offering mediation between economic development and environmental protection (Bologna 2008).

    However, one of the first definitions of sustainable development was formulated some years later in a document, entitled World conservation strategy for the living natural resources for a sustainable development, written by IUCN (International Union for Conservation of Nature), UNEP (United Nations Environment Program) and WWF (World Wide Fund for Nature). In this document, development is described as sustainable if it considers the social and environmental effects, apart from the purely economic ones, of the existing resources and if it analyses the advantages and disadvantages of such a debate in a perspective of long as well as short duration (IUCN, ET AL. 1980) 1.

    Nevertheless, the most widely quoted definition of sustainability is that of the World Commission on Environment and Development, better known as Brundtland Commission (from the surname of the Norwegian prime minister, also president of the Commission). In the introduction to the report of the Commission, “sustainable development is the development that meets the needs of the present without compromising the ability of future generations to meet their own needs” (quoted in Bologna 2008).

    Numerous conferences of the United Nations, starting from the Nineties, have contributed to clarify and develop the notion of sustainability. Among all these conferences, we can remember the Conference of Rio on Environment and Development in 1992, the 2000 Millennium Summit, the World Summit on Sustainable Development of Johannesburg in 2002 and the 2005 World Summit of the United Nations.

    The notion of sustainability has become the subject of numerous studies in the sphere of social and economic sciences thanks to the impulse given by the United Nations. In this literature, in addition to the aspect linked to eco-efficiency, it is possible to notice a growing consent around the notion of sustainable development that contains elements of economic efficiency and social equity. In this perspective, sustainable development implies the achievement of a quality of life that can be kept for various generations since it is fair from a social point of view, efficient in economic terms and sustainable from an environmental point of view.

    2. Sustainability and economic development

    In the last few years, in parallel with international developments, a vast literature about the relation between ecology and economic development has emerged. In particular, scholars’ attention has concentrated on two areas of application: international economy and the firm.

    As regards international economy, a new area of business ethics has developed, which discusses the relations between economic growth, social justice and environmental impact on a global scale 2. In this perspective, a relevant contribution was offered by Wolfgang Sachs who, with reference to the definition of sustainability given by the Brundtland Commission, explains that the essence of sustainability lies in the “particular relation” that exists between people rather than between people and nature. According to the German scholar, this notion represents the basis for a new ethical approach, which extends the equity principle to human community in a temporal perspective which regards the present as well as the future (Sachs 2001, 2001 a). This approach has peculiar implications on the differences which exist between the countries of the North and of the South of the world: indeed, the imperative of social justice on a global scale cannot underrate the impact that economic development has on the environment and, therefore, on the living conditions of future generations. In this perspective, with reference to the challenges set by global pollution, Sachs asserts that justice has to be meant as something which enables both present and future generations to have an equal right on the heritage of the world’s natural resources.

    In this perspective, industrialized countries are asked to work on a structural change of their economy, so that they can enable the other countries “not to be deprived of the resources they are entitled to use” (Sachs 2001, p.126).

    A further position in this direction is offered by the scholars of the biophysical approach, who bring the idea of prosperity back to an ecological perspective, capable of including both economic and human development (Adolphson 2004).

    With reference to international trade, this approach radically changes the perspective of the exchange which, in opposition to the classical economic orientation based on the idea of the mutual benefit of the exchanges, takes into account nature’s free work of the natural resources invested in production. For this reason, the biophysical theory does not consider as equal the exchanges which take place between industrialized and underdeveloped countries, since the latter sell raw materials whose nature’s free work is not calculated in the exchange (Adolphson 2004).

    In addition to international prosperity, a relevant side of literature brought the concept of sustainability back to the firm and its activities. Firms, and especially multinationals, are the engine of the world economy, but they are also responsible for global pollution; this means that it is useless to talk about sustainable development without underlining the firm’s role (Shirivastava 1995). Starting from this idea, some authors have put the CSR approach side by side with “corporate sustainability” with the aim of including in the notion of corporate social responsibility some kind of attention towards ecology. The following section is a description of this approach and it analyses the way in which this approach combines with the traditional stakeholder approach.

    3. Corporate Sustainability

    The idea of corporate sustainability (CS) emerged in the literature on business ethics in the middle of the Nineties as a consequence of the idea that the investigation on sustainable development should involve firms too.

    However, since the very first studies on this subject, scholars started to define the terms and ways to introduce the concept of sustainability into the analysis on the firm. In 1995, a group of authors faced this problem by trying to introduce the ecological perspective into business dynamics. To this end, Starik and Rands suggested a “multilevel or multisystem” approach, capable of including ecological, cultural, political, economic, organisational and individual elements and they highlighted the characteristics of ecologically sustainable organisations with reference to each level (Starik and Rands 1995).

    Shrivastava, on the contrary, linked the four aspects of sustainable development (population control, food security, management of natural resources and creation of sustainable economies) to four typical mechanisms of the firm (quality of business management, competitive sustainable strategies, transfer of technologies and control of the impact on the population). In this scheme, ecological aspects are predominant for the firm, more than the other factors such as food security and population control (Shirivastava 1995).

    During the same period, other authors focused their attention on the importance of social aspects, which are implicit in the pattern of sustainable development (Schaefer 2004). In this perspective, Galdwin et al. defined sustainability as that process which enables the firm to reach a social development based on “inclusion, connection, equity, cautiousness and security” (Galdwin et al. 1995, p.878). In this definition, sustainability’s social aspects are clearly summed up in the first three elements: inclusion, which involves the possibility of growth for everyone; connection, which indicates the interdependence of the three spheres: economic, ecological and social; and finally equity, which refers to the inter and intra-generational perspective (Galdwin et al. 1995).

    Further studies contributed to clarify and develop the notion of CS. In literature, it is possible to see a growing consent about a notion of CS based on an idea of firm’s management which is able to embody three dimensions, the economic, the social and the environmental one (Steurer et al. 2005). The main idea is that the three pillars (economic, social and ecological) are linked one to the other so as to mutually influence themselves.

    Figure 1: Three dimensions of CS

    However, the relation existing between these three columns is still the object of discussion. In a study of 2002, Dyllick and Hockerts offered a theoretical perspective that could guarantee a sustainable balance between the three firm’s dimensions. In general, a great deal of studies on corporate sustainability focused on the so-called Business Case for sustainable development, which puts the economic dimension at the centre of the relation.

    The main focus of such investigations is the concept of efficiency. Eco-efficiency is a concept widely used in CS and it implies the efficient use of natural capital by a firm. In terms of calculation, eco-efficiency introduces a relation between the wealth generated by the firm and its aggregated ecological impact 3.

    Starting from the concept of eco-efficiency, the notion of socio-efficiency has emerged in recent years. It describes, in a similar way, the relation between the wealth generated by the firm and its social impact. Therefore, a lot of studies focusing on the Business case bind economic sustainability to the social and ecological efficiency of the firm. However, according to Dyllick and Hockerts, these studies underestimate the importance and autonomy of the two other cases: the Natural Case and the Societal Case 4.

    From the Business Case point of view, the concepts of eco-efficiency and ecological sufficiency are a priority as compared with the perspective based on efficiency, while in the business case the attention is turned towards socio-efficiency and ecological equity. The two European authors suggest a new theoretical hypothesis that reconstructs the three cases by recognizing six principles: eco-efficiency, socio-efficiency, eco-effectiveness, ecological equity and ecological sufficiency. The notion of effectiveness, in the ecologic as well as in the social field, overcomes the idea of efficiency in the sense that it takes into account the possible environmental or social impact of all the phases of the life history of the product. The principle of ecological sufficiency refers to the impacts relative to the choices of the population about the products. CS ought to consider the choices of the community in which it acts, coherently with the expected environmental impacts. Finally, the question of ecological equity introduces the theme of the equal distribution of natural capital and of the risks linked to consumerism and industrial production (Dyllick and Hockerts 2002).

    3.1 Relation between Corporate Social Responsibility and Corporate Sustainability

    The relation between CSR and CS is still a subject of debate in contemporary literature about business ethics.
    While CSR focuses on the firm, the concept of sustainability introduces a wider stakeholder notion, which takes into account society as well as the communities that might be directly or indirectly involved in the firm’s activities as well as in those of stakeholders and future generations. In a survey of 2003, Marrewijjk identified three possible interpretations of the relation between CSR and CS. First of all, it was possible to consider CS as an evolution of CSR, that is to say, it introduced a notion of responsibility extended to society as a whole. In this perspective, Marrewijk referred to a group of scholars who focused on the reformulation of the concept of CSR in terms of Corporate Societal Accountability (CSA), where the two terms societal and accountability were aimed at introducing responsibility towards society as a whole.

    The second interpretation introduced a hierarchical relation between CSR and CS. To this end, Marrewijk referred to the proposal of some researchers of the Helsinki University of Technology, who considered CS as a “finishing point of the route” which necessarily goes through CSR, considering it as an intermediate stage where firms learn to balance the three economic, social and ecological dimensions.

    Figure 2: Profit/Planet/People: relation between CSR and CS (Source: Erasmus University, Wempe & Kaptein in Marrewijk 2003)

    Finally, it was possible to consider CS and CSR as synonyms. In this perspective, while it is true that in literature, during the Nineties, there was a discrepancy between the surveys which focused on the ecological dimension and those focusing on the social one, nowadays, the two spheres are intimately related (Marrewijk 2003).

    A further contribution to the debate relative to CSR and CS was offered in 2005 by a group of researchers of the Managing Sustainability Research Centre (MSRC) of Vienna. According to these scholars, the theory of CS can be seen as an evolution in a conceptual perspective of the stakeholder theory (Steurer et al 2005, p.267). In literature, it is possible to recognize at least three different perspectives related to the stakeholder theory: the firm’s perspective, the stakeholder perspective and the conceptual perspective. The latter, which is also the latest to be analysed, shifts the attention from the firm and stakeholders to a general and moral foundation, out of the firm itself. This perspective enables the scholars who adopt it to use the general principle of sustainability as a moral filter for the definition of the principles to be followed in the relations between stakeholders. In this sense, the concept of sustainability had a crucial role in the evolution of the stakeholder theory from a conceptual point of view (Steurer et al 2005).

    1It is necessary to note that in the Italian version of the document the term sustainable was translated with the formula “rational and enduring” (Bologna 2008, p.91-2).
    2With reference to this point, see also paragraph 3.3 Environmental ethics applied to business world at the entry Business ethics.
    3The concept of eco-efficiency was formulated for the first time by the World Business Council for Sustainable Development WBCSD in 2000.
    4To this end, it is interesting to note that the title of the article by Dyllick and Hockerts is Beyond the “Business Case for Corporate Sustainability”.

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    Editor: Valentina GENTILE
    © 2009 ASSONEBB


    It is the measure of dependence between two variables. There is correlation between the variables, when there is a linear relationship.

    Correlation can be measured using various indexes, among which the best known is the correlation coefficient of Bravais-Pearson: which is equal to the ratio of the covariance between the variables divided by the product of the standard deviations of the variables. If the index takes values positive, negative, zero, the variables are said, respectively, directly related, indirectly related, uncorrelated.


    Guseo R., Statistica, CEDAM, 2006.

    Leti G., Statistica descrittiva, Il Mulino, 1999.

    Editor: Giuliano DI TOMMASO - ASSONEBB

  • Cost of Trading

    The cost of Trading is a proxy for an illiquid market. Is given by an explicit and an implicit component. The former one includes broker commissions, platforms' trading fees, transaction taxes, clearing and settlement fees, (all charged to final investors). The latter component is determined by an implicit illiquidity of the market measured by a gap between execution price and some benchmark used to proxy for the price in a perfectly liquid market (when available, the midquote at execution is used).

    Editor: Maria Francesca NUZZO


    CBR is an evaluation criterion of acceptability and/or preferability of a project. It is calculated as the ratio of benefits to costs. According to this criterion a project is desirable if the present CBR is greater than one. Among multiple projects, the one that has a higher CBR will be preferred.
    This ratio presents some operational benefits, mainly because it is quick and easy to calculate and it represents a ratio between two values; therefore, BCR is useful in pointing out some features of the project structure. However, its application has a relevant inconvenience: BCR is highly sensitive to the definition of cost and benefit entries. Alternative assembling of costs and benefits results in considerably different values.

    Editor: Carmen NOTARO
    © 2010 ASSONEBB


    The Council (in French, Counseil de l’Union europénne) is the EU main decision-making body; it consists of the Member States meeting at ministerial level (article 237-243 TCE, former articles 210-210 and 150 … 154). The Council meets according to the subject being discussed and for reasons relating to the organisation of its work, it meets in different “configurations”, which are attended by the Ministers of the Member States and the European Commissioners responsible for the areas concerned. Each Member State sends a representative authorised to act on behalf of their own State, which is normally responsible for the issue on the agenda. Its composition depends on which subjects are on the agenda and there are no permanent members. In the 1990s, there were 22 configurations; the configurations were reduced to 16 in June 2000 and further reduced to 10 in June 2009, with the Treaty of Lisbon. At present, they are: General Affairs and External Relations, Economic and Financial Affairs (ECOFIN), Justice and Home Affairs (JHA), Employment, Social Policy, Health and Consumer Affairs, Transport, Telecommunications and Energy, Agriculture and Fisheries, Environment, Education, Youth and Culture. The Council is located in Brussels, where it meets several times each month (meetings are held in Luxembourg only in April, June and October). Council decisions are prepared by the Permanent Representatives Committee (COREPER), which meets once a week. The Committee coordinates and oversees the work of numerous committees and working groups, and instructs the dossier to be submitted to COREPER and the Council. Nevertheless, the SCA prepares the work of the Agriculture Council and its first meeting took place in 1960.
    In a great majority of cases, the Council takes decisions on a proposal from the European Commission and in association (ordinary legislative procedure) with the European Parliament (justice, security, immigration, budget and international treaties), through a Parliamentary consultation process (agriculture, taxation and industrial policy). The voting rules of the Council are, according to the subjects: simple majority (for procedural decisions), qualified majority voting (a system called “double majority” designed to reflect the double legitimation of the Union, a Union made of States and citizens, adopted for several decisions in areas related to the internal market as well as in the areas of security, areas of safety, asylum and immigration, judicial cooperation in civil and criminal police cooperation), or unanimity (in the areas of foreign policy, defence, taxation). Since 1 January 2007, the distribution of votes between the Member States is as follows: Germany, France, Italy, and the United Kingdom: 29; Spain and Poland: 27; Romania: 14; the Netherlands: 13; Belgium, the Czech Republic, Greece, Hungary and Portugal: 12; Austria, Bulgaria and Sweden: 10; Denmark, Ireland, Lithuania, Slovakia and Finland: 7; Malta:3; for a total of 345.
    As sanctioned by Article 16, par. 4 TEU, as of 1 November 2014, a qualified majority is achieved if at least 55% of the Council members (representing 65% of the population of the Union) approve the proposal. Therefore, a blocking minority in the legislative proposal must include at least four Council members. Otherwise, the qualified majority shall be deemed attained. As an exception to this rule, in cases where the Council does not act on a proposal of the Commission or of the High Representative of the Union for Foreign Affairs and Security Policy, the qualified majority shall be defined as at least 72% of the members of the Council representing Member States comprising at least 65% of the population of these States.

    Link: www.consilium.europa.eu
    © 2011 ASSONEBB


    The parties to a contract. In a simple contract for sale, the seller and the buyer.

    ©2012 Editor: House of Lords


    Acronym: ECJ. The Court of Justice of the European Union (in French, Court de justice de l'Union européenne) is the judicial institution of the European Union and the European Atomic Energy Community (EAEC). It is composed of three courts: the Court of Justice, the Tribunal and the European Civil Service Tribunal, whose first task is to ensure compliance with and uniform interpretation of EU law.
    It verifies the compatibility of acts of European institutions and governments with treaties, and it gives rulings to national courts on the interpretation or validity of the provisions of European law (reference). It is competent to hear disputes that may arise between Member States, the European institutions, companies and individuals (infringement action, action for annulment, action for failure).
    The Court of Justice may also be referred to in order to appeal the ruling by the national Court. Governed by Arts.19 TEU and 251-281 TFEU, it is headquartered in Luxembourg and it is made up of 27 Judges and 8 Advocates General appointed for six years by agreement between the Member States. The Court can sit in plenary session, as a Grand Chamber of thirteen judges, or in chambers of three or five Judges. The Judges of the Court of Justice shall elect among themselves the president for a period of three years, renewable. The President manages the work and services of the Court and chairs the hearings and deliberation of the larger formations of the Court. The Advocates General have the duty to present, with complete impartiality and independence, reasoned submissions on cases brought before the Court to assist in the trial. Every three years there shall be a partial replacement of the Judges and Advocates-General. The Tribunal consists of one judge for each Member State. They are appointed by common accord of the governments of the Member States for six years. They elect among themselves the president, for a period of three years. They also appoint a Registrar for a term of six years. Contrary to the Court of Justice, the Tribunal does not have permanent Advocates General. The Tribunal has jurisdiction to hear actions concerning natural or legal persons against acts of the institutions and organs of the European Union; the cases brought by States against the Commission or the Council on State aid and dumping of appeals; direct compensation for any damage caused by the EU institutions and in the area of the EU. The Tribunal shall have jurisdiction of appeals against decisions of the European Civil Service Tribunal. The rulings made by the Tribunal, may, within two months, be subject to an appeal to the Court of Justice on points of law. The European Civil Service Tribunal is, within the Institution of the Union Court, the court specialising in the litigation of the civil service of the European Union, expertise that was previously exercised by the Court of Justice, then, from its inception in 1989, by the Court of First Instance.

    Link: http://curia.europa.eu/

    Editor: Cristiana MENE’
    © 2011 ASSONEBB


    It is a measure of joint variability of two variables X and Y.

    Where X, Y are the observed values of the two variables and E[X], E[Y] are their arithmetic means.

    The covariance is the average of the products and therefore is positive in the case of concordance, that is, if a positive or negative difference of X by E[X] correspond mainly difference of equal sign of Y by E[Y]. Conversely, it is negative in the case of a discrepancy between the signs of the differences between the two variables. The link between the two variables is defined direct in the first case, and reverse in the second case.


    Guseo R., Statistica, CEDAM, 2006

    Leti G., Statistica descrittiva, Il Mulino, 1999

    Editor: Giuliano DI TOMMASO - ASSONEBB


    Covered bonds are debt instruments issued by a credit institution backed by a cover pool of collaterals. Covered bonds are in essence “dual recourse” bonds, because they enable investors to have a claim against the issuer but also, in case of default, against the cover pool. The attractive feature for investors is the lower risk profile with a relatively high return as compared to other debt instruments. The issuance of covered bonds is a low cost source of funding for banks, but also a diversification mechanism that facilitates their asset-liability management, and often covered bonds allow for higher credit ratings due to their double recourse nature.Covered bonds are one of the largest segments of the European bond market, presenting, at the end of 2007, an outstanding volume of 2,050,895 euros (EUR) from the EU member states 1. For this reason, during the expansion of the covered bond market, a complex regulatory framework that includes national legislations and European directives has been developed. The European legislation on covered bonds is based on two directives. Firstly, the 85/611/EEC Directive on Undertakings for Collective Investments in Transferable Securities (UCITS) defines covered bonds as bonds issued by a credit institution subject to special prudential public supervision. To protect investors, covered bond issuance rules are included in a specific legal framework, the set of eligible assets in the cover pool must be assessed by law, and in the event of an issuer’s failure bondholders must have priority claim against the cover asset pool. The Directives also set out the limits on the concentration of investments in securities made by investment funds in the covered bonds of a single issuer. These limits are higher than those provided for other kind of debt instruments, according to the compliance with the specific requirements set out by article 22(4) of the Directive. Secondly, the Directive 2006/48/EC and 2006/49/EC, known as the Capital Requirement Directive (CRD), introduce a credit risk weight assigned to covered bonds.

    1Source European Central Bank Report, Covered Bonds in the EU Financial system, December 2008

    European Central Bank Report, Covered Bonds in the EU Financial system, December 2008.

    Editor: Bianca GIANNINI
    © 2010 ASSONEBB


    The covered interest parity (CIP) is a non-arbitrage condition. It postulates that the nominal interest differential between two countries () should equal the forward premium (Ft+1/St)1. CIP assumes perfect capital mobility, and that debt instruments denominated in domestic and foreign currency have similar risk. If , then the forward price of the foreign currency will be greater (lower) than the spot price.
    In formulas:
    1+it =1/s (1+it*)Ft (1)

    where the LHS is the return from purchasing and holding a domestic financial asset and the RHS is the determinist return … known at time t … obtained through the investment on the forward market. Equation (1) can be rewritten as follows:
    1+it = [( Ft - St )/ St] +1+[(Ft - St)/St] it* + it* =>it* +[(Ft - St)/St] (2)

    It is needless to say that if the equality does not hold, it would give rise to an arbitrage opportunity. Let’s suppose for example that equation (1) does not hold because of a relatively low domestic interest rate (LHS)

    1. by borrowing national currency at interest it for, let's say, n periods;
    2. by selling it spot for the foreign currency (yielding 1/St units of foreign currency for each unit on the domestic one);
    3. by lending the foreign currency at rate it* ;
    4. by selling the amount (1+it*)/S in the n-period on the forward market against the national currency.
    At the end of the n-period, the arbitrageur will repay (1+it) for each unit of national currency borrowed, but they will obtain an amount of domestic currency equal to for each unit of foreign currency lent. The difference between these two amounts is the riskless profit earned by the arbitrageur.

    1 Here F is the forward exchange rate and S is the spot exchange rate.

    Editor: Lorenzo CARBONARI
    © 2009 ASSONEBB


    The term Credit Crunch (also known as a Credit Squeeze or Credit Crisis) is a money market situation in which loans are hard to get. A Credit Crunch is the reduction in the general availability of loans or credit or a sudden tightening of the conditions required to obtain loans from the banks. Credit crunch usually occurs when a government tries to control inflation by imposing restrictions on lending to consumers and small businesses. Very often a credit crunch comes with a flight to quality by lenders and investors, as they look for safe investments.

    Editor: Giovanni AVERSA


    A “credit default swap” (CDS) is an agreement that can be included in the family of the so-called credit derivatives.
    It is an instrument mainly used by banks in order to hedge against credit risk, but also for speculative reasons.
    A CDS implies two counterparties, the protection buyer and the protection seller. The latter is obliged, in this contract, to pay the flows related to a specific credit (reference obligation) in case of a credit event of the reference entity. The former will pay a certain premium for buying this sort of protection for his/her credit.
    Let’s imagine a bank A that has in its portfolio a bond issued by a company B. Bank A wants to protect itself from a credit event to company B. Indeed, if a credit event occurs to company B, this company will
    probably face difficulties in repaying its debt: that is what bank A wants to avoid. Therefore, for instance, bank A could enter into a CDS with another bank (let’s call it bank C) that is going to pay the flows related to the bond issued by company B in case of default of the issuer. In order to enter into this CDS contract, bank C will receive a premium calculated on the notional of the reference obligation that is in the book of bank A.
    The difference with a common swap is that with a CDS there is only one necessary payment (the premium paid by the protection buyer to the protection seller), because the protection seller acts only if the credit event occurs.
    Actually, a CDS can be viewed as a type of insurance on the default of the reference entity.
    Obviously, the more likely the market considers the default of the reference entity, the higher the premium requested by the protection seller will be. The length of a CDS is typically 5 years, but since it is an over-the-counter agreement,any
    length can be chosen.
    The graph below represents the flows that characterise a CDS contract:

    The CDS market is a very important benchmark on how the market perceives and evaluates the default risk for a specific company. It has become more reliable than ratings and it varies continuously according to the market.
    Editor: Ugo TRENTA
    © 2009 ASSONEBB


    Credit Unions are the newest thrift institutions in the United States. Typically, these intermediaries have a small dimension (most of them hold less than $10 million in assets), serving only their members’ deposits (called shares) and borrowing needs. These small cooperative lending institutions have a “common bond requirement” for members, that is to say, for instance, membership is granted to union members or employees of a particular firm, and there are not stockholders. Because of the members' ownership, deposits in Credit Unions are called shares and the return is corresponded in the form of dividends instead of interest. Although they can be chartered by the state or by the federal government, most Credit Unions are regulated by the National Credit Union Administration (NCUA), which is the principal regulatory agency at federal level. In particular, the NCUA is responsible for setting minimum capital requirements and for the examination of the Credit Union. The NCUA also administrates the Central Liquidity Facility (CLF), which is the lender of last resort for Credit Unions with liquidity problems. The asset structure of Credit Unions is principally represented by small consumer loans, residential mortgage loans, and securities. The NCUA prohibits certain types of investments, including most derivatives, most stripped MBS (e.g., interest-only strips and principal-only strips), mortgage servicing rights, and residual interests in asset-backed securities (ABS), and it specifies the categories of investment allowed. For instance, they include investment in corporate credit unions. Federal depository insurance for state-chartered credit unions is provided by the National Credit Union Share Insurance Fund (NCUSIF) for up to $100,000 and $250,000 for retirement accounts, as provided for commercial banks.
    Mishkin Frederic S. (2010), Economics of Money, Banking, and Financial Markets, Business School Edition (2nd Edition), Pearson Education Inc.
    Fabozzi F., Modigliani F., Jones F. (2010), Foundation of Financial Markets and Institutions, Pearson International Edition.
    Editor : Bianca GIANNINI
    © 2010 ASSONEBB

  • CreditEdge Plus

    CreditEdge provides a platform to deliver Moody’s KMV Expected Default Frequency - EDF™ (EDF) credit measures and financial analysis data from a variety of forward-looking, timely sources to support trading and investment decisions.

    CreditEdge Plus™ is a credit spread valuation framework that provides asset and risk managers insight into the dynamics of the equity, bond and credit default swap markets. The platform bridges the equity, bond and credit derivative markets, enabling an in-depth understanding of their impact on credit risk that was previously unavailable.


    Italian Sovereign Debt Crisis 2011. In March 2011, the European Commission with the European Central Bank started the implementation of the Stability Program, which aims at severely reducing the European average debt. In particular, those countries having a debt above 60% with respect to GDP should reduce it in twenty years’ time; in 2011, Italy exhibits a 120% ratio of debt over GDP, and therefore it is compelled to reduce its debt by 2% each year (i.e. having a surplus).
    (http://www.dt.tesoro.it/it/analisi_programmazione_economico_finanziaria/documenti_programmatici/programma_stabilita.html). In Spring 2011, the discussion about the effects of the program was mostly technical and left to academics (http://www.fulm.org/). In March, the Italian Government presented a Budget Law that shifted the implementation of the undersigned program to 2013, after the elections. This inaction was heavily criticised by the EU (Germany and France above all), and in July 2011, the ECB and the EU asked Italy to guarantee a zero budget balance in 2012 and a surplus in 2013, as requested in the program. The ECB asked for the liberalisation of services, which represent over 70% of the Italian GDP, reforms of pensions and protected sectors, and a reform of the public administration, responsible for low labour productivity.
    Since the end of July, the Italian Government has been trying to match the zero budget balance, by increasing taxes on fuel and labour and by cutting current expenses (but not those related to the public sector and politics), without any structural approach. In 2013, most of these decisions will have to be renewed or radically modified. Because of this inability to match the undersigned treaty, the financial market is punishing Italy as a debtor. The spread between the Italian and German Bond is above 300 basis points, and the increase in the cost of debt makes the zero budget balance impossible to be achieved.
    Editor: Chiara OLDANI
    © 2011 ASSONEBB


    The validity of the classical theory of the efficiency of financial markets raises doubts about some hypotheses, since not always in the stock markets the price of a security corresponds to its fundamental value. In fact, a change in prices can depend not only on new information that becomes available, but also on other factors.

    Criticism of the hypothesis of rationality
    The idea that all investors who operate within a financial market are rational in their financing and allocation choices appears unrealistic. Most of these subjects make their own decisions based on reasonings that deviate from rational decision-making and make their choices in a non-rational way; the analysis of these aspects is often the object of study in psychology and sociology (see the item Behavioral Finance).
    Fischer Black (1986) confirms the irrationality of investors through the existence of so-called noise traders; individuals who make their investment decisions by not evaluating and not rationally examining the information available, without having performed the technical or fundamental analysis of a given security, but in a completely irrational and even random manner. Such choices, even in the case in which the noise traders constituted only a minority with respect to the total of the investors, can cause distortions and changes in the prices of the stock and in their level of risk, making them different from those expected.
    According to Kahneman and Riepe (1998) there are times when investors tend to deviate from the rational process. These deviations can be defined in three categories including the aptitude for risk, the different formation of expectations and the sensitivity of decisions to the structure of the problem, which do not allow to follow a rational path. A further problem for the sustainability of the efficient market hypothesis arises considering the fact that individual investors are not the only ones operating in the financial markets. Most of the funds are managed by professionals from financial institutions, which are subject to further distortions compared to those of individual investors, as they manage the money of others and have corporate goals to achieve (see Corporate Governance).

    Criticisms of the absence of arbitrage
    The theory of the efficiency of financial markets claims that in an efficient financial market the prices of securities completely reflect the information available. If irrational investors caused a change in prices, through their random strategies, arbitrageurs would intervene with the task of bringing prices back into equilibrium, thus annulling any kind of variation.
    The criticism of the arbitrage hypothesis has been raised because empirical research has shown that arbitrage transactions in financial markets are not without risk, as the theory of the efficiency of financial markets claimed; it is precisely by virtue of the riskiness of the arbitrage strategies that the prices of the securities remain distant from their fundamental value for long periods. In these cases, arbitrage does not perform its function of price correction and fails to guarantee market efficiency.
    Barberis and Thaler (2003) identify four different categories of risks related to arbitrage: fundamental risk, noise trader risk, implementation costs and model risk. The fundamental risk is when the publication of new information on a certain security can bring down the price, even if the stock was previously underestimated and far from its fundamental value. To defend themselves against this risk, arbitrageurs implement hedging strategies by negotiating securities that are considered substitutes for the previous one. However, the fundamental risk cannot be completely eliminated because, within the capital markets, substitute securities are hardly perfect.
    The noise trader risk is the risk that the deviation of a share price from its fundamental value increases in the short term as a consequence of the behavior of irrational investors (for example due to a pessimism of noise traders, who decide to sell a security already underestimated, causing a further lowering of the price). If the arbitrageurs holding an underestimated stock and subject to such movements would adopt a long-term approach, they would wait for the price of the same to move closer to its fundamental value before selling it, thus realizing profits. However, arbitrageurs, who are often represented by financial institutions that manage other people's money, wait for the price to rise and adjust again to its fundamental value, since individual investors who rely on them do not accept initial losses. This means that the arbitrageurs sell the title even at a lower price than the purchase price, thus accepting the losses.
    The third risk factor concerns implementation costs. To activate an arbitrage strategy, the presence of transaction costs (commission or bid-ask spread) must be assessed, which can limit the profits of the arbitrator. Often the subjects who apply the arbitration perform short sale or sale transactions in markets of several states; these transactions are subject to legal restrictions or even prohibited by some individuals (professionals of various investment funds). All the various implementation costs complicate the arbitration mechanism and make it more risky. Finally, with the model risk we underline the fact that arbitrageurs could use untruthful and inaccurate models that can lead them into error (for example estimating that a price of a security is far from its fundamental value, even if the two values ??actually coincide).
    Model risk can therefore cause strong uncertainty in the implementation of arbitrage strategies. The combination of the four risk categories, combined with other factors that are often realized in empirical reality, contributes to setting limits to arbitrage. The inexistence of a completely effective arbitration makes it impossible to correct market distortions, which is therefore inefficient. The theory of limited arbitrage shows that while irrational investors cause price deviations from the fundamental value of a security, on the other hand rational investors often do not have the power to correct such deviations.

    Barberis N., Thaler R. (2003). A Survey of Behavioral Finance. In: George M. CONSTANTINIDES, Milton HARRIS, and Ren΄e M. STULZ, eds. Handbook of the Economics of Finance: Volume 1B, Financial Markets and Asset Pricing. Elsevier North Holland, Chapter 18, pp. 1053…1128.
    Black F.(1986). Noise. The Journal of Finance, Vol . 41, No. 3, Papers and Proceedings of the Forty-Fourth Annual Meeting of the American Finance Association.
    Kahneman D., Riepe. (1998). The Psychology of non-Professional Investor. Journal of Portfolio Management, Vol. 24, No. 4.


    The Crown corporation is established and regulated by a country's state or government. This type of company is meant to serve the public interest as determined by the current government. The Canadian Crown corporations, are technically owned by the monarch, as the institution's sole shareholder because the Crown owns all the property of state. Most Crown corporations operate with direct government control only being exerted over the corporation's budget and the appointment of its chairperson and directors.

    Editor: Giovanni AVERSA


    The liquid composition of crude oil is placed below the surface of the Earth and its physical characteristics (density and viscosity) are really variable.
    Crude oil is directly extracted from the oil dwell without any treatment. It has a dark brown colour: the more the hydrocarbon in its composition, the darker the colour. It is composed of carbon (85%), hydrogen (13%), and oxygen, nitrogen and other metallic elements (2%).
    Editor: Claudio DICEMBRINO
    © 2009 ASSONEBB


    Digital currency is an alternative currency free from the control of the central bank or government and guarantees high anonymity. Existing levels of cryptocurrencies are a fraction of the volume of major conventional currencies. There could be very large impacts on monetary policy if cryptocurrencies became a substitute for conventional currencies. It is possible that central banks could choose to develop their own cryptocurrencies with unknown consequences for legal money.

    Cryptocurrency is a peer-to-peer version of electronic currency; the Bank for International Settlements (BIS 2015) offers a broad definition of cryptocurrency as a means of payment with the following characteristics:
    - Electronic: Cryptocurrencies are stored and used in transactions digitally.
    - Use of peer-to-peer (P2P) transactions: Cryptocurrencies can function like currency, 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 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. Note that gold, when viewed as a currency, and to some extent coins, does not represent a liability of anyone either.
    There are hundreds of cryptocurrencies in circulation with different characteristics; digital coins, such as Bitcoin or Ethereum are an alternative currency free from the control of the central bank or government and guarantee high anonymity. They are issued with Initial Coin Offering … ICO; some cryptocurrencies are fully backed up by the U.S. dollar, and managed by financial operators, like BitCoin Cash and, in the coming future, Facebook Libra.
    From a monetary point of view, cryptocurrencies are not considered as money since they are not legally accepted as means of payments; in fact, central banks do not guarantee cryptocurrencies, and trade can fail.
    In December 2018 the owner of a Canadian based cryptocurrency portal (QuadrigaCX) died accidentally and the password to enter the platform were lost; all bitcoins stored in wallets by QuadrigaCX for an estimated amount of ?145million have been lost and none could restore the system.
    Cryptocurrencies can impact on the traditional financial system in various ways; first they can become larger and larger if investments can be denominated in cryptocurrencies, or they can substitute traditional financial and monetary means, by moving resources out of the traditional financial system.
    Existing levels of cryptocurrencies are a fraction of the volume of major conventional currencies. The total estimated global value of the first ten most traded cryptocurrencies was $270 Billion in July 2019, after the peak of January 2018 at $800 (market capitalisation of cryptocurrencies is available at https://coinmarketcap.com/it/). World’s coins and banknotes amount to $7.6 trillion. Including checking accounts brings the figure to nearly $37 trillion, while adding in money market and savings accounts brings it to over $90 trillion.
    There could be very large impacts on monetary policy if cryptocurrencies became a substitute for conventional currencies. The difference in scale becomes even bigger if cryptocurrency holdings used for non-monetary purposes are taken out.
    According to Elliot et al. (2018) ‘in the immediate term, the biggest monetary policy challenges from cryptocurrencies would likely be for countries with exchange and capital controls’, like China. ‘This is because market participants could potentially bypass the need to purchase foreign currency through traditional payment systems, by using cryptocurrencies instead for capital transfers and foreign exchange transactions. This depends, of course, on whether, and how effectively, a government limits the ability to buy or redeem cryptocurrencies with their national currency’ (p.19).
    The extreme price volatility they have experienced thus far represents a major barrier to their treatment by holders as a true currency. Volatility and risk are largely unknown, and Borri (2019) empirically verified that tail risk for cryptocurrency is high.
    Central Banks, and their national governments, may also take further actions to limit adoption of cryptocurrencies, if they become large enough to threaten the dominance of legal currencies. Central bankers and treasury ministers at G20 summits have agreed on the need to identify common policies to manage digitalisation, artificial intelligence and restore trust. In the 2019 Osaka summit, leaders stated that “While crypto-assets do not pose a threat to global financial stability at this point, we are closely monitoring developments and remain vigilant to existing and emerging risks”. The leaders’ declaration adds to the joint statement by the G20 finance ministers and central bank governors at the end of their meeting in Fukuoka, Japan, on June 8 and 9 2019. The finance ministers and central bank governors specifically mentioned the risks from crypto assets relating to “consumer and investor protection, anti-money laundering (AML) and countering the financing of terrorism (CFT).”
    According to Elliott et al (2018) ‘If cryptocurrencies become a much bigger factor on the world stage, they have the potential to create long-term challenges to monetary policy similar to some already experienced using conventional currencies. For example, economies that switch heavily from the use of their national currency to cryptocurrencies, either through government choice or households and businesses fleeing their unstable currency, would face issues similar to “dollarization.” Such economies would find price levels and interest rates to be determined more by external factors than by national fiscal and monetary policies’ (p. 19).
    ‘Similarly, if society loses faith in conventional money throughout the world, countries might face a situation similar to the gold standard era when the value of national currencies were fixed to gold. This would also be analogous to a global monetary union, with all their pluses and minuses, in addition to any purely cryptocurrency related issues. For instance, monetary policy could be simultaneously too loose for some countries and too tight for others, with a single policy having different effects in different nations’ (p.20).
    It is possible that central banks could choose to develop their own cryptocurrencies, and some have considered it. Central banks cryptocurrency CBCC (BIS 2017) could spread in countries where cash is declining, like Sweden. This cryptocurrency could be ‘limited to financial institutions or it could be made widely available to the public. If limited to financial institutions, this would be similar to bank reserves, which are already electronic, but the underlying technology could enable peer-to-peer payment transactions and immediate settlement between banks’ (Elliott et al 2018, p.20). Central banks may eventually ‘have to decide whether issuing retail or wholesale CBCCs makes sense in their own context. In making this decision, central banks will have to consider not only consumer preferences for privacy and possible efficiency gains … in terms of payments, clearing and settlement … but also the risks it may entail for the financial system and the wider economy, as well as any implications for monetary policy. Some of the risks are currently hard to assess, like the cyber-resilience of CBCC’ (BIS 2017, p. 67). Both the Bank of Canada and Singapore Monetary Authority have run pilot projects but concluded the technology is still too early to adopt.
    Instead of limiting their own cryptocurrency to financial institutions, a central bank may choose to develop a universally accessible cryptocurrency with one-for-one convertibility with cash and reserves. This could provide new advantages to monetary policy, for example, greater visibility into monetary demand and the possibility of interest payments on the cryptocurrency (potentially including negative interest rates). However, many open questions remain, including whether it would be adopted (as some may express concerns around anonymity) and whether this would be too disruptive to the financial sector (as people may prefer to hold the central bank currency instead of holding bank deposits).

    Bank for International Settlements (2015). Committee on Payments and Market Infrastructure. “Digital Currencies,” November 2015. https:/www.bis.org/cpmi/publ/d137.htm
    Bank of International Settlements (2017). Central Bank Cryptocurrencies. BIS Quarterly Review, September 2017. https://www.bis.org/publ/qtrpdf/r_qt1709f.pdf
    Borri Nicola (2019) Conditional Tail-Risk in Cryptocurrency Markets https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3162038,


    In the past decades, the large incidence of currency crashes linked to episodes of financial crisis has given impulse to the development of an important branch of scientific crisis literature. Many researches also attempted to go further than the mere creation of vulnerability indexes and tried to predict in advance currency crises by using observable economic and socio-political variables. The key insight that motivated these empirical studies was not the assumption that currency crises were predictable, but instead the fact that the question of whether crises were predictable could only be settled in practice (Berg and Pattillo, 1999). However, in looking at crises empirically, it is important to define in practice what a currency crash is. For instance, Frankel and Rose (1996) carried out specific research on the stylised facts associated with currency crashes. They used data from 105 developing countries relative to the period 1971…92 and defined a currency crash as a large change of the nominal exchange rate. In practice, they selected only depreciations of 25% or more over the year, and exceeding the previous year’s depreciation by at least 10%. The choice of the threshold and the measure of the exchange rate movements used (the change in the natural logarithm of the nominal bilateral dollar exchange rate multiplied by 100) are arbitrary, and variants of this approach based on different cut off points have been used in literature. In general, the definition of currency crashes based only on the behaviour of the nominal exchange rate has served two purposes, to investigate the probability of a successful speculative attack against the currency, as well as its possible causes. However, it cannot necessarily be used to identify currency crisis episodes. Indeed, in the latter case, the definition of an event 1 may take into account also speculative attacks that are successfully warded off by the authorities through a decrease in reserves and/or increases in interest rates.
    1.Eichengreen et. al. (1995) define a speculative attack as a period of extreme pressure in the foreign exchange market, therefore they identify a currency crisis (event) by measuring the intensity of international speculative pressure through a speculative pressure index.

    Berg A. and Pattillo C. (1999), "Predicting currency crises: The indicators approach and an alternative", Journal of International Money and Finance, Volume 18, Issue 4, August , pp. 561-586
    Eichengreen B., Rose Andrew K. and Wyplosz C.(1995), "Exchange Market Mayhem: The Antecedents and Aftermath of Speculative Attacks", Economic Policy
    Frankel J. and Rose Andrew K. (1996), "Currency Crashes in Emerging Markets: An Empirical Treatment", Journal of International Economics 4, pp. 351-368

    Editor: Bianca GIANNINI
    © 2010 ASSONEBB


    Brazil and China sealed a $30bn currency swap agreement that acts as a backstop to growing trade between the two countries. They have signed a currency swap deal, designed to safeguard against future global financial crises. It is an important step forward in BRICS “currency swap diplomacy”. The BRICS have been pushing for a more international role for their currencies, in order to promote as an alternative to the US dollar as a global reserve currency. The agreement was signed in March 2013 on the sidelines of the fifth BRICS (Brazil, Russia, India, China and South Africa) summit in Durban, South Africa.

    The deal guarantee the flow of Brazil’s growing soy, iron ore and other exports to China and China’s imports of manufactured goods to Brazil regardless of global financial conditions. The idea is that the central banks of the two trading partners are to swap local currency worth up to 190 billion Renminbi-Yuan or 60 billion reais ($30 billion) in case turmoil hits the global financial system.

    Editor: Giovanni AVERSA


    It refers to fixing criteria for forward-looking values, considering inflation.
    Editor: Carmen NOTARO
    © 2010 ASSONEBB


    Creating the Banking Union: Steps

    When the financial crisis spread in 2008, Europe had 27 different regulatory systems for banks in place, largely based on national rules and national rescue measures, although some limited European minimum rules and coordination mechanisms already existed. The pre-crisis framework was not capable of responding to the financial crisis. Since 2008 the European Commission has tabled around 30 proposals to create, piece-by-piece, a sounder and more effective financial sector (see Banking Union divides Europe). It also corresponds to the EU's implementation of its G20 commitments on financial regulation.

    09/2012 … 12/2012. First Steps

    The European Council of June 2009 unanimously recommended establishing a single rulebook applicable to all financial institutions in the single market. The rulebook is a corpus of legislative texts covering all financial actors and products: banks have to comply with one single set of rules across the single market. For this reasons, the Commission proposed a single supervisory mechanism (SSM) for banks led by the European Central Bank (ECB) in order to strengthen the Economic and Monetary Union. The set of proposals is a first step towards an integrated “Banking Union” which includes further components such as a single rulebook, common deposit protection and a single bank resolution mechanisms. The proposals concern:

    - A regulation giving strong powers for the supervision of all banks in the euro area to the ECB and national supervisory authorities i.e. the creation of a single supervisory mechanism;

    - A regulation with limited and specific changes to the regulation setting up the European Banking Authority (EBA) to ensure a balance in its decision making structures between the euro area and non-euro area Member States;

    - A communication outlining the Commission's overall vision for rolling out the banking union, covering the single rulebook, common deposit protection and a single bank resolution mechanism.

    19/03/2013 … 29/10/2013. Single Supervisory Mechanism (SSM)

    The Parliament and the Council reached a political agreement on the Single Supervisory Mechanism package. COREPER on 18 April approved the final compromise texts. On 21 May, the EP Plenary held a general debate on the SSM regulation. Following the European Parliament Plenary vote on the legislative resolution for the European Banking Authority (EBA) Regulation and the Council agreement conferring specific supervision tasks on the European Central Bank, the European Union formally adopted the creation of a bank single supervisory mechanism (SSM), led by the European Central Bank, with the objective to strengthen the Economic and Monetary Union. Both legal texts were published in the Official Journal on 29 October 2013.

    10/07/2013 … 19/12/2013. Single Resolution Mechanism (SRM)

    The Commission proposed a Single Resolution Mechanism for the Banking Union. The Single Resolution Mechanism complements the Single Supervisory Mechanism which was proposed by the Commission in September 2012. It is set to centralise key competences and resources for managing the failure of any bank in the Euro Area and in other Member States participating in the Banking Union. Council agrees general approach on Single Resolution Mechanism. Negotiations with the European Parliament will start in early 2014 to allow for its adoption before the end of the current legislative period.

    Fig. 1 Transition to a Banking Union:

    Editor: Giovanni AVERSA

Selected letter: C English version

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