E-encyclopedia of banking, stock exchange and finance

Selected letter: I



    In December 1998, the International Accounting Standards Board (IASB), the main institution responsible for international accounting standards, issued the accounting standard IAS 39 with the aim to define the principles for the recognition, measurement and disclosures of financial and non-financial instruments. Later, the ever-changing of markets and the creation of new financial instruments, has involved a number of improvements and additions to the accounting standard IAS 39, until 2007. After the start of the economic crisis in 2008, the IASB decided to issue the standard IFRS 9 with a particular attention to calssification and measurement of financial instruments. The IASB published the final version of IFRS 9 in July 2014 replacing IAS 39. The main new features include a new model of "classification and measurement", impairment, hedge accounting and own credit. The new standard will apply from 1 January 2018, but early application is allowed.

    IFRS 9 specifies how an entity should classify and measure financial assets, financial liabilities, and some contracts to buy or sell non-financial items. IFRS 9 requires an entity to recognise a financial asset or a financial liability in its statement of financial position when it becomes party to the contractual provisions of the instrument. At initial recognition, an entity measures a financial asset or a financial liability at its fair value plus or minus, in the case of a financial asset or a financial liability not at fair value through profit or loss, transaction costs that are directly attributable to the acquisition or issue of the financial asset or the financial liability.

    Financial assets

    When an entity first recognises a financial asset, it classifies it based on the entity’s business model for managing the asset and the asset’s contractual cash flow characteristics, as follows:

    • Amortised cost-a financial asset is measured at amortised cost if both of the following conditions are met:

      • the asset is held within a business model whose objective is to hold assets in order to collect contractual cash flows; and
      • the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

    • Fair value through other comprehensive income-financial assets are classified and measured at fair value through other comprehensive income if they are held in a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets.
    • Fair value through profit or loss-any financial assets that are not held in one of the two business models mentioned are measured at fair value through profit or loss.

    When, and only when, an entity changes its business model for managing financial assets it must reclassify all affected financial assets.

    From the IAS 39 to IFRS 9. New model of classification and measurement of financial instruments

    Work on IFRS 9 was accelerated in response to the financial crisis. The global financial crisis has involved, among its effects, the spread of the conviction that the accounting rules have contributed, at least for acceleration and escalation, to the worsening economic crisis. Especially, for the excessive use of fair value as a benchmark for the financial instruments accounting. During the financial crisis, the delayed recognition of credit losses on loans (and other financial instruments) was identified as a weakness in existing accounting standards. For this reason, after the beginning of the global crisis, the accounting standards have been subject to evaluation by IASB regulators. These reviews have highlighted the weaknesses of the accounting models used by companies to edit the financial statements and the need to modify accounting standard IAS 39. Therefore, the 12/11/2009, IFRS 9 comes into force with the aim to improve issues arising from the method of accounting for financial instruments.

    Overall, the changes include the introduction of a new model of classification and measurement (see Table 1), the adoption of a new evaluation criteria of expected losses and the definition of new rules recognition for derivatives.

    Tab.1 Differences between IAS 39 and IFRS 9

    The new standards identified by the IASB in IFRS 9 will also ensure a more timely recognition of expected losses. The goal of these changes is to simplify the existing rules and strengthen investor confidence in the financial statements of banks and the financial system.

    The new rules will apply from 1 January 2018 with the possibility of early adoption.

    “Classification and Measurement”
    Classification determines how financial assets are accounted for in financial statements and, in particular, how they are measured on an ongoing basis. Requirements for classification and measurement are the foundation of the accounting for financial instruments.

    Many application problems emerged from IAS 39 regarded classification and measurement of financial assets, because characterized by various classification categories and models of value associated. For these reasons, the IASB to make it easier, for users of financial statements, the understanding of the information provided for the replacement of previous models.

    IFRS 9 introduces a logical approach for the classification of financial assets, which is driven by cash flow characteristics and the business model in which an asset is held. This single, principle -based approach replaces existing rule-based requirements that are generally considered to be overly complex and difficult to apply. The new model also results in a single impairment model being applied to all financial instruments, thereby removing a source of complexity associated with previous accounting requirements.

    Tab. 2: Process for determining the classification and measurement of financial assets


    During the financial crisis, the delayed recognition of credit losses on loans (and other financial instruments) was identified as a weakness in existing accounting standards. As part of IFRS 9,the IASB has introduced a new, expected -loss impairment model that will require more timely recognition of expected credit losses. Specifically, the new Standard requires entities to account for expected credit losses from when financial instruments are first recognized and to recognize full lifetime expected losses on a more timely basis. The IASB has already announced its intention to create a transition resource group to support stakeholders in the transition to the new impairment requirements.

    “Hedge accounting”

    IFRS 9 introduces a substantially-reformed model for hedge accounting, with enhanced disclosures about risk management activity. The new model represents a significant overhaul of hedge accounting that aligns the accounting treatment with risk management activities, enabling entities to better reflect these activities in their financial statements.

    In addition,as a result of these changes, users of the financial statements will be provided with better information about risk management and the effect of hedge accounting on the financial statements.

    “Own credit”

    IFRS 9 also removes the volatility in profit or loss that was caused by changes in the credit risk of liabilities elected to be measured at fair value. This change in accounting means that gains caused by the deterioration of an entity’s own credit risk on such liabilities are no longer recognized in profit or loss. Early application of this improvement to financial reporting, prior to any other changes in the accounting for financial instruments, is permitted by IFRS 9.


    ABATE E. … ROSSI P. … VIRGILIO A. (2010) IAS/IFRS -US GAAP. Principi contabili italiani. Confronto e differenze, Ernest & Young, Egea

    DELOITTE website, IFRS 9 - Financial Instruments (http://www.iasplus.com/en/standards/ifrs/ifrs9)

    IFRS FOUNDATION (2014) ASB completes reform of financial instruments accounting, press release, 24 July (http://www.fondazioneoic.eu/wp-content/uploads/downloads/2014/08/2014-07-24-Comunicato-stampa-IFRS-9.pdf)

    IFRS FOUNDATION (2014) IFRS 9 Financial Instruments, Project summary, 24 July (http://www.ifrs.org/Current-Projects/IASB-Projects/Financial-Instruments-A-Replacement-of-IAS-39-Financial-Instruments-Recognitio/Documents/IFRS-9-Project-Summary-July-2014.pdf)

    MARCON C - ZANON G. (2013) La contabilizzazione dei derivati dallo IAS 39 all’IFRS 9, Univ. Ca’ Foscari, Venezia

    MARCON C. - PEGORARO M. (2012) AS 39-IFRS 9: Cambiamenti nella rilevazione e valutazione delle attività e delle passività finanziarie, Univ. Ca’ Foscari, Venezia

    KPMG website, IFRS 9 - the complete standard (http://www.kpmg.com/global/en/topics/global-ifrs-institute/ifrs-topics/pages/classification-and-measurement.aspx)

    Editor: Giovanni AVERSA

    2018 ASSONEBB



    This essay explores the role of the Impact Assessment Board (IAB) in the context of the European Commission’s impact assessment system. The first part describes the Regulatory Oversight Bodies (ROBs) that aims to correct the failures of regulation and the limits of regulation. The second part explains the European Union Regulatory Oversight Bodies model, e.g. the IAB, created in November 2006 and located in the Commission Secretariat-General under the direct authority of the Commission President. The IAB examines and issues opinions on all the Commission’s draft impact assessments. The Board has been analysed focusing on its tasks, powers, composition and the effects of its opinions. The third part, finally, describes the IAB’s findings.

    The Impact Assessment Board (hereafter: IAB) was created in November 2006 and is located with in the Commission’s Secretariat-General Department under the authority of the Commission President.

    According to the European Commission, the IAB will: provide widespread quality advice and control ensuring that the responsibility for preparing assessments and the relevant proposals remains with the relevant departments and Commissioners and contributes to ensuring that regulatory impact assessment approach is of high quality, that they examine different policy options and that they can be used throughout the legislative process (COM 2006, 689).

    The IAB is part of a wider Better Regulation of the European Commission, and it responding to repeat call for better quality assurance mechanisms and stronger coordination in the ex-ante assessment activities carried out by the various Directorate Generals (COM 2006, 689).

    The IAB appears, at least prima facie, as the European version of the US Office of Information of Regulatory Affairs (OIRA) which is responsible for monitoring the regulatory proposals from federal agencies on the other side of the Atlantic (De Benedetto, Martelli, Rangone, 2011).


    Regulation can solve social problems, but can also impose its own problems. (Wiener 2008). Indeed, on the one hand, regulation is a basic function of government (the state) in every country. Its main objectives include correcting market failures such as externalities; e.g. health, safety and environmental risks; asymmetric information, e.g. in financial markets or in labour markets; market power, e.g. entry barriers, as well as correcting other problems such as unfairness. On the other hand, regulation can also impose its own problems, including compliance costs, inhibition of innovation, unaccountable decision-making, and ancillary risks. Thus, there are not only market failures but also government failures (Majone 1994, 1996, 2010).

    These problems call for an oversight body to correct the limits and failures of regulation and the regulatory instrument, such as the better regulations tools.

    The idea, already developed in some jurisdictions, starts from the assumption that decisions taken using regulatory impact assessment approach, in particular impact assessment tools, inevitably require a certain amount of discretion: the selection of measures to be submitted to impact assessments; exploring some aspects while ignoring others; impact assessments carried out at too advanced a stage in the process … all these issues can influence the final decision (Bassanini, Paparo, Tiberi, 2006; Radaelli and Meuwese 2008).

    The implementation of a ‘bad’ impact assessment, therefore, risks frustrating the objective it seeks to achieve, while also resulting in adding an administrative burden to the decision-making mechanism Thus, to reduce this broad discretion, it seems necessary to verify the correct application of the tools they use (Radaelli and Meuwese 2008).

    According to literature, these issues raise the following question: Quis Custodiet Custodes? or Who oversees the overseers? (Alemanno 2009).

    The OECD has highlighted that a key role of oversight bodies is to coordinate and supervise, […] and that Regulatory Impact Analysis (RIA) is undertaken appropriately (OECD 1997, 2002, 2007).

    These structures, generically called Regulatory Oversight Bodies (ROBs) are a disomogenea category that have the common purpose of maximising the efficiency and the effectiveness of control via the use of the levers transparency, accountability, and evidence-based analysis (Cordova-Novion and Jacobzone 2011; Jakobi 2012).
    From a structural point of view Regulatory Oversight Bodies can have a certain degree of differentiation: in fact, they may be set up in different forms (units, boards, committees, departments), or placed inside one of several administrative structures, e.g. the executive or legislative (De Benedetto, Martelli, Rangone, 2011).
    In Europe, regulatory review was not formally established until after 2000. Based on a White paper on Governance and Mandelkern Group report, both issued in 2001, the European commission under President Prodi launched its formal Impact Assessment procedure as way to improve policy design.

    The European Commission, according to the Communication on “Impact Assessment” intends: to launch impact assessment as a tool to improve the quality and coherence of the policy development process […] (COM(2002)276).

    Since the launch of the impact assessment procedure in 2002, the European Commission has established an articulated evaluating system, with the task of supervising the quality of impact assessments performed by the Commission services.

    However, notwithstanding the efforts put in place to establish mechanisms for quality control within the European system of impact assessments, a debate has started on how to create a new body that can better ensure regulatory control in the European Union (Meuwese 2007).

    The participation of different levels has led to overlapping of controls (checks) and not procedures which are well-coordinated; in this way, the mechanism as above described has not contributed to the success of the existing system of regulatory control, and resulted in an evaluation exercise poorly coordinated and supervised (Renda 2006; Cecot et al. 2007).

    At the European Parliament plenary discussion on Better Regulation on 4 April 2006, Commission President Barroso acknowledged the need to respond to the varying quality of Commission impact assessments after which the Commission committed itself to establishing a quality control body on 14 November 2006: the Impact Assessment Board (Lofstedt 2006).

    The European Commission has adopted a system based on three distinct levels (Alemanno 2011; Benedetti 2012).

    The first is represented by central units located within individual departments of the Commission itself: these are assigned the tasks of coordinating the operating units in preparing Impact Assessment drafts in their sectors (i.e. Inter-Service Consulting) (Alemanno 2011; Benedetti 2012).

    The second level is represented by the General Secretariat to which, instead, is given the function of checking the quality of impact assessment drafts of the departments. In this way, the European Union has a hierarchical system, the apex of the pyramid is assigned to the highest office of the European Commission. The fundamental task is to guarantee that all European initiatives respond to subsidiarity and proportionality requirements; applying systematic consultations towards stakeholders; and, including impact analysis on Small and Medium Enterprises (Alemanno 2011; Benedetti 2012).

    Finally, the third level is based on the Inter-Service Steering Group (IASG): a inter-departmental committee that involves the Services of the Commission which concerned with the proposals under examination. The constitution of such committee is mandatory for regulatory proposals that have a transversal impact (Benedetti 2012).

    The IAB is part of the third level: the Board intervenes after that regulation is evaluated by Directorate Generals and Secretariat General, but before of the IASG’s control (Benedetti 2012).

    The establishment of the IAB has not put an end to this heterogeneous oversight mechanism (Alemanno 2011).

    Tasks and power

    First of all, according to article 1 of the Mandate - The Mandate and Rule of procedure are IAB’s document-base - the IAB mission’s is that to improve the quality of the Commission’s impact assessment by strengthening quality control and providing advice and support. Its main task is therefore to provide advice and issue opinions on the quality of the impact assessment as prepared by the department.

    There are limits to the power the IAB has when carrying out its functions: in fact, the IAB can only postpone a draft impact assessment that appears critical in some parts, but it cannot force the Directorate Generals … authors of the initiative … to change it in the desired direction (Allio 2007).

    The IAB has no veto power over the Commission’s impact assessment (Torriti and Löfstedt 2009; Wiener and Alemanno 2011).

    This choice seems refers to the actual European institutional architecture, in fact, the conferral to the IAB of a return letter power might breach the principle of collegiality, which governs the functioning and the operation of the Commission (Meuwese 2008; Alemanno 2008).

    However, the IAB was given the power, according to article 4 of the Mandate, to send prompt letters in order to encourage the writing of impact assessments on relevant legislative proposals that do not fall within the Commission’s Legislative and Work Programme (Meuwese and Senden 2009).

    The Commission’s Legislative and Work Programme, as is know, does not necessarily cover the proposals that have the greatest impact; therefore, the existence of prompt letters can help fill this gap; in particular forwards Commission initiatives with significant impacts, also including proposals of delegated and implementing acts.

    In this way, even if the opinions are not binding, the IAB has the possibility to exert a moral suasion on Directorate Generals - it is also called fonction d’incitation re?glementaire (Alemanno 2008).

    Moreover, impact assessments not only is required by relevant legislative and non-legislative proposals, but also covering both Commission’s delegated acts which are likely to have significant impacts and implementing acts, which procedures are defined by articles 290 and 291 TFEU that followed the entry into force of the Lisbon Treaty (Alemanno and Meuwese 2013).

    In particular, impact assessment also accompanied comitology issues in order to enhance the transparency of regulatory process in which such comitology procedures are adopted that, as know, these are out of parliamentary control (Alemanno and Meuwese 2013).

    The IAB may also be asked to give their opinion on specific impact assessment. According to article 5(3) of the Rule of procedure: on request of departments, and at the discretion of the Chair, the Board may provide advice on impact assessments during the course of their being drawn up. The Board can ask departments to report on the progress of the impact assessment work.

    Although it is difficult to predict what role it could play in the development of impact assessment: between the Secretariat General - which is essentially responsible for the quality control upstream and IAB itself - which is basically the task of quality control in the valley. The risk is that, with the involvement of the IAB, in counseling (for the preparation of impact assessment) becomes the same way both judge and party politics. It was expected that such a situation could compromise the independence and credibility of the Board (Alemanno 2008).


    The members of the IAB are: the Deputy Secretary-General responsible for Smart Regulation and eight permanent officials at Director level of the following areas: macroeconomic; microeconomic; environmental and social.

    The Deputy Secretary-General is the chair and represents the Board. The Board’s members are appointed by the Chair on the basis of their competence and independence. They are appointed by the Commission President for a 2-year term and are directly responsible to him.

    According the article 3(1) of Rules of procedures, they shall act independently of their personal interests and the interests of their home departments.

    In case of the conflict of interest, according to article 3(3), the Chair shall decide on how to deal with cases where independence of a member is questioned.

    The IAB’s members can be influenced in their work - this is especially true when the IAB should consider a project of those Services that are not representatives of the Board. In these circumstances, the risk could be that the quality control of the IAB is particularly heavy for delaying (boycott) the development of the proposal. Given the growing confrontation between the different branches of the Commission who compete to implement their respective programs, such a scenario boycott should not be overlooked in the context of the current criteria for the composition of the IAB.

    According to doctrine, the only way to ensure complete independence from the services of the Committee is interpreted widely to article 3 of the Mandate, forbidding members to express their opinion on the draft impact assessment issued by their service (Alemanno 2008).

    However, the IAB’s independence seems be formal, rather than substantial. In fact, the IAB is led by the Deputy Secretary-General, but it is subordinated to instructions of the Commission’s President. This feature has raised questions from other European Union institutions (Benedetti 2011).

    The European Parliament has called for the following measures to strengthen: (i) the independence of members of the IAB, who must be scrutinized by the European Parliament and the Council prior to appointment and no longer be subject to the instructions of the Commission President; (ii) the involvement of experts from all policy areas as well as all stakeholder groups affected in the IAB’s work [...] (European Parliament 2011).

    Apart from the composition and independence issues, the question of the criteria for membership on the Board, there is also a crucial question regarding the effectiveness of the organism (Alemanno 2008).

    The article 1 of the Rules of procedure establish that members must have great competence in one of four areas that characterises the Regulatory Impact Assessment approach: macroeconomic, microeconomic, environmental and social. Therefore, on the one hand, in this way IAB has the necessary expertise to assess Regulatory Impact Assessment integrated (Benedetti 2011); on the other hand, this choice seems surprising, especially in light of the mission of the Committee: to provide advice and contribute to the development of a culture of impact assessment of the Commission (Alemanno 2008).


    All impact assessments of the Commission service are scrutinized by the Board which assesses the quality of their draft impact assessment report.

    After a review of the draft impact assessment, the Board sends its detailed observations to the relative Directorate Generals in the form of a checklist of the quality, through which the IAB will: (i) check the application of the Commission’s guidelines as well as standards on impact assessments work - Conformity Test; (ii) deliver an opinion as to whether the degree of analysis in the impact assessment is proportional to the potential economic, social and environmental objectives of the proposed initiative - principle of proportionate analysis (iii) and assess whether the analysis is of sufficient quality with reference to the reliability of the data and the methods used - suitability test (Alemanno 2008).

    When the Board concludes that substantial improvements are needed on a number of significant areas, it issues an opinion to the author service making recommendations on how the draft impact assessment should be improved; in this way, IAB can demand (request) a resubmission of a new impact assessment report.

    In certain cases, the second opinion may again be negative, and a second resubmission called for. Albeit rare, a third negative opinion may be issued. When the opinions positive is the file can move forward once Board recommendations are taken into account.

    In general, the opinions of the Board are not binding and its evaluation on impact assessment quality is weak, and in this way, it cannot be considered the Commission’s regulatory watchdog, but the IAB’s functions can have some effects on the European Commission’s impact assessment system (Alemanno 2009, 2011).

    This section explores the Board’s activities: the IAB’s first full year of operation was 2007, it examined 100 draft impact assessments.

    In 2008, the Board examined and issued an opinion on 135 draft impact assessments. In 2009, the IAB examined all of the impact assessments produced by the Commission services. On 79 impact assessments evaluated in total, the IAB issued 106 opinions, 30 of which were on resubmitted impact assessment reports . As was the case in 2008, the IAB noted a continued shift in the nature of quality concerns from the basic elements of the impact assessments, which continue to improve, to more substantial analytical issues. However, there was still a slight increase in the resubmission rate from 33% to 37%, indicating that improvements in quality remain a challenge.

    In 2010, the Board considered 66 impact assessments reports over 23 meetings. It issued 83 opinions, with 18 being on resubmitted reports. In particular, the impact assessment reports showed a heavy concentration on financial regulation as the Commission addressed problems that had become apparent in the financial crisis. Thus, the responsible service - Internal Market and Services - therefore produced the largest number of reports - 16 out of 66 or one quarter. In contrast, it had only produced 11% of reports on average in the three previous years (European Commission 2010).

    In 2011, the IAB considered 104 impact assessments reports and issued 138 opinions, 35 of them are on resubmitted reports. It also examined 43 Multiannual Financial Framework (MFF) impact assessments reports being considered as substandard upon first scrutiny .

    Finally, in 2012, the IAB issued 144 opinions, 47 of them are on resubmitted reports. In particular, the opinions issued by the IAB were concerned 97 impact assessments … there is a slight decrease compared to 104 in 2011. Instead, it is further increased, compared to previous years (77% in 2011, 74% in 2010 and 68% in 2009), the percentage of impact assessments carried out on the legislative acts (78%) compared to those involving the so-called “Non-legislative proposals”.
    As regards the type of initiative, the proportion of impact assessments reports concerning legislative proposals, as opposed to non-legislative proposals, was higher than previously, confirming the trend observed since 2007 for the Commission’s impact assessment work to focus on initiatives likely to have significant impacts.

    IAB’s findings

    Since its creation, there have been great expectations from the IAB’s findings: in fact, a number of studies have argued that the IAB’s activities seem to produce positive effects on impact assessment quality, but its powers are more limited and risk reducing its efficacy.

    The European Court of Auditors (ECA) has analysed whether impact assessments have supported decision-making in European Union institutions. This analysis relied on: a comparison to other international impact assessment systems, an analysis of a sample of Commission impact assessment’s, interviews and surveys with people involved in performing, reviewing and using the Commission’s impact assessments, both within and outside the Commission (ECA 2010).

    The European Court of Auditors has investigated whether the IAB has produced effects on impact assessment quality. According to the Commission staff interviewed in connection with the in-depth case studies, the creation of the IAB as an internal quality review body has put pressure on the Directorate Generals to present good quality draft reports. It has also added transparency to the system since all IAB opinions are published on the European Commission impact assessment website (ECA 2010).

    In particular, the European Court of Auditors has recommended, firstly, that considering that the Commission initiative has to go through interdepartmental consultation, decision-making by the members of the Commission and translation, the IAB opinion can only have a substantive effect on the final version of the underlying initiative if the IAB review takes place early enough in the process; secondly, the effectiveness of the quality review is subject to its timely availability (ECA 2010).

    The Centre for European Policy Studies (CEPS) confirmed that the quality of the European Commission impact assessment system seems to have been positively affected by the creation of IAB (O. Fritsch et al. 2012).

    According to this study, impact assessment tools within the European Commission and United Kingdom contexts … these are the two dimensions that are compared … can be understood examining their existing regulatory oversight bodies (O. Fritsch et al. 2012).

    It is interesting to look at the different work methodologies of the two models in order to underline some differences. The Regulatory Policy Committee (RPC) is the United Kingdom independent body with its own secretariat that does not take instructions from Cabinet Offices or other branches of the government. Then, the Regulatory Policy Committee, rather than publishing opinions on completed impact assessments, interacts with departments during the production phase and suggests modifications or types of analysis (O. Fritsch et al. 2012).

    Instead, the European Commission impact assessment system has a different structure. The IAB publishes its opinions on the impact assessments produced by the different Directorate Generals - contrast this with the work ‘behind the scenes’ of the RPC, but in fairness, parts of the European Commission’s work on impact assessments do take place behind ‘closed doors’. The Commission only publishes the final version of impact assessments, together with IAB’s opinion on previous drafts and the corresponding legislative proposal; earlier impact assessment drafts, in contrast, are not made public (O. Fritsch et al. 2012).

    In 2007, when the IAB became operational, several indicators show a sharp increase in the order of magnitude of 20 to 30%, e.g. for the quantification of costs and benefits, the monetisation of costs and benefits, and the evaluation of the three main categories of impacts (Fritsch et al. 2012).

    Andrea Renda explores the development of impact assessment in the European Union and its study confirms that the Commission impact assessment system is firmly nested into the Commission’s policy cycle.

    The European Commission has certainly achieved important results in mainstreaming impact assessment in its policy-making process, though important margins for improvement remain (Renda 2010).

    This study observes that at the end of 2009, the European Commission had completed 475 impact assessments. The number of impact assessments has been increasing significantly since 2006, although 2009 marked a slow-down due mostly to the transition towards a new European Commission and a new European Parliament.

    In 2010, at least 140 impact assessments were expected according to the available 2010 roadmaps. In any event, available data show that the Commission impact assessments have become more complete and transparent over time (Renda 2010).

    Thus, the European Union experience with impact assessment is considered as being fairly successful, but margins for improvement certainly exist. In particular expanded competence of the Commission calls for a stronger oversight on the quality of the Commission impact assessments. This can be achieved in several ways, including strengthening the IAB (Renda 2010).
    Demand for quality assurance systems within the Commission led to the appointment of the IAB, which in turn generated significant pressure on Directorate Generals. Indeed, Directorate Generals such as Internal Market and Services and Enterprise and Industry are working on their own, expanded version of the impact assessment guidelines to make sure their officials produce better proposals and do not elicit negative comments by the IAB (Renda 2010).

    The Directorate General for Internal Policies examines tasks and procedures of impact assessments carried out in the European Commission and in eight member states: Denmark, France, Germany, Hungary, Italy, Poland, the Netherlands and the United Kingdom (De Palo et al. 2011).

    The comparative study focused on the European evaluation system and recognised that it has introduced both centralised and decentralised scrutiny mechanisms. The individual Inter-Service Steering Groups provide a decentralised form of scrutiny, since they are set up to support individual impact assessments, while the IAB acts as a central scrutinising body. In both cases, it appears that the focus is on impact assessment quality control, rather than on formal or procedural checks (De Palo et al. 2011).

    Another issue explored by research is linked to independence: although the IAB is formally an independent body, its members are director-level officials from Commission departments and they are appointed by the President of the Commission. This means that the IAB is, in practice, internal to the European Commission and thus only independent to a certain extent (De Palo et al. 2011).

    Even if the IAB’s members act with their own professional expertise, in practice there are situations where Directors of individual Directorate Generals scrutinise assessments produced by their Directorate Generals (De Palo et al. 2011).

    Such issues have raised some questions about the composition of the IAB as well as has the participation of other European institutions (in particular the European Parliament as mentioned above) in impact assessments scrutiny (De Palo et al. 2011).

    This research has confirmed the general positive consensus that the IAB contributes to an improved quality of impact assessment, but the Court of Auditors has also confirmed that the IAB’s opinions are often available quite late in the policy process and thus possibly limiting the effectiveness of the feedback mechanism.

    The European Parliament Committee on Industry, Research and Energy (ITRE) has commissioned Copenhagen Economics to carry out a study on the implementation of the so-called Small Medium Enterprises (SME) test in member state and European Commission services (Frelle-Petersen and Winther 2011).
    Briefly, the SME test is a procedure … according to the Small Business Act - whereby the impacts of new legislative or other policy proposals on Small and Medium sized Enterprises are assessed.

    The study was carried out in seven member state - Austria, Denmark, Germany, Italy, Latvia, Romania and United Kingdom and the European Commission.

    The study’s findings are that member states and the European Commission are facing different challenges and barriers in relation to the implementation of the SME test. In particular, the study shows that control mechanisms can play an important role both in the dissemination of better regulation, and in the applying of SME test (Frelle-Petersen and Winther 2011).

    I focused on the European Commission that seems to have a well-institutionalised SME test procedure, in fact as noted the study: the SME test is being used more and more consistently across European Union services (Frelle-Petersen and Winther 2011).

    Among the key factors that can explain the more consistent use of the SME test is the establishment of the IAB (Frelle-Petersen and Winther 2011).

    The IAB’s role as an external control mechanism has pushed the Directorate Generals to set higher internal standards to satisfy the SME test.

    Interviews with European Commission services show that the IAB has a strong disciplinary effect: the reason is that the IAB can publish critical opinions if a specific operational unit does not live up to the impact assessment guidelines. Individual European Commission officers describe the risk of receiving a critical opinion from the IAB as ‘a big threat’ (Frelle-Petersen and Winther 2011).


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    BASSANINI F., PAPARO S., TIBERI G. (2006), Qualità della regolazione: una risorse per competere. Metodologie, tecniche e strumenti per la semplificazione burocratica e la qualità della legislazione, in TORCHIA L., BASSANINI F. (a cura di), Sviluppo o declino. Il ruolo delle istituzioni per la competitività del Paese, Firenze, Passigli Editore, p. 5
    BENEDETTI M. (2011), Controllo e indirizzo della regolazione: Gli Oversight Bodies, Osservatorio sull’Analisi di Impatto della Regolamentazione, in www.osservatorioair.it, P3/2011, pp. 25-32.
    BENEDETTI M. (2012), Il controllo sull’analisi di impatto della regolazione: l’esperienza degli Oversight Bodies, in Riv. trim. dir. pubbl., n. 4., pp. 1057-1105.
    CECOT C. et al. (2007), An Evaluation of the Quality of Impact Assessment in the European Union with Lessons for the U.S. and the EU, Joint Center Aei-Brookings Joint Center For Regulatory Studies, pp. 4-11
    CORDOVA-NOVION, C. and JACOBZONE S. (2011), Strengthening the Institutional Setting for Regulatory Reform: The Experience from OECD Countries, OECD Working Papers on Public Governance, No. 19, OECD Publishing, Paris, p. 6.
    DE BENEDETTO M., MARTELLI M., RANGONE N. (2011), La qualità delle regole, Bologna, il Mulino, pp. 173-180.
    DE PALO et al. 2011, Comparative Study on the purpose, scope and procedures of impact assessment carried out in the member state of the EU, pp. 11-65.
    EUROPEAN COMMISSION (2006), A Strategic review of Better Regulation in the European Union, COM(2006) 689 final, pp. 8-9.
    EUROPEAN COMMISSION (2009), Commission Staff Working Document, Impact Assessment Board Report for 2008, SEC(2009)55 final, Brussels, 28.1.2009.
    EUROPEAN COMMISSION (2010), Commission Staff Working Document, Impact Assessment Board Report for 2009, SEC(2009) 1728 final, Brussels, 29.01.2010, p. 6 ss.
    EUROPEAN COMMISSION (2011), Commission Staff Working Document, Impact Assessment Board Report for 2010, SEC(2011) 126 final, Brussels, 24.01.2011, p. 10 ss
    EUROPEAN COMMISSION (2012), Impact Assessment Board Report for 2011, SEC(2012) 101 final, Brussels, 1.12.2012, p. 23.
    EUROPEAN COURT OF AUDITORS (2010), Impact Assessment in the EU institutions: do they support decision making?, Special Report no. 3, p. 6 s.
    EUROPEAN PARLIAMENT (2010), Guaranteeing independent impact assessments, 2010/2016(INI).
    FRELLE-PETERSEN C. e WINTHER C. D. (2011), Barriers and Best Practices in SME Test Implementation, Brussels, European Parliament, pp. 7-8.
    FRITSCH O. et al. (2012), Regulatory Quality in the European Commission and the UK: Old questions and new findings, Centre for European Policy Studies, CEPS Working Document, No. 362, pp. 1-12.
    JAKOBI T. (2012), Regulating regulation? The regulatory policy of the OECD, Paper presented at the Conference on New Perspectives on Regulation, Governance and Learning, University of Exeter, p. 10
    LOFSTEDT R. E. (2006), The ‘Plateauing’ of the European Better Regulation Agenda: An analysis of activities carried out by the Barroso Commission, King’s Centre for Risk Management, King’s College London, p. 3 s.
    MAJONE G. (1994), The rise of the regulatory state in Europe, West European Politics, London, 17:3, p. 82 ss.
    MAJONE G. (1996), Regulating Europe, Londra, Routledge, p. 18.
    MAJONE G. (2010), The transformation of the regulatory State, Osservatorio sull’Analisi di Impatto della Regolazione, www.osservatorioair.it, p. 9.
    MEUWESE A. C. M. (2007), Inter-institutionalising EU Impact Assessment, in Better Regulation, S. Weatherill (eds.), Oxford and Portland, Oregon, p. 302.
    MEUWESE A. C. M. and Senden L. (2009), European Impact Assessment and the Choice of Alternative Regulatory Instruments, in The Impact of Legislation. A Critical Analysis of Ex Ante Evaluation, J. Verschuuren (ed.), Martinus Nijhalf Publishers, pp. 148-149.
    OECD (1997), The Oecd Report on Regulatory Reform: Synthesis, Paris, p. 5
    OECD (2002), OECD Reviews of Regulatory Reform Regulatory Policies, in OECD Countries From Interventionism To Regulatory Governance, p. 84.
    OECD (2007), Background Document. Oversight Bodies for Regulatory Reform, Paris, p. 9.
    RADAELLI C. M. and MEUWESE A. C. M., (2008) Hard questions, and equally hard solutions? Proceduralization through impact assessment in the European Union, University of East Anglia … School of Political, Social and International Studies, Norwich, 28-29 May 2008, p. 6.
    RENDA A. (2006), Impact Assessment in the EU: The State of the Art and The Art of the State, Centre for European Policy Studies, Brussels, p. 59.
    RENDA A. (2010), The Development of RIA in the European Union: an Overview, Centre for European Policy Studies, Brussels, pp. 1-28.
    RENDA A. (2011), Law and Economics in the RIA world: Improving the use of economic analysis in public policy and legislation, Cambridge, Intersentia, p. 32.
    TORRITI J. (2008), Does the Impact Assessment on the ‘Third Package’ provide the correct economic forecast for the liberalisation of the EU energy markets?, EUI Working Papers RSCAS 2008/14, p. 3.
    TORRITI J. and LOFSTEDT R. E. (2009), EU-U.S.: to compete or to cooperate? This is an Impact Assessment question, in J. Swinnen, D. Vogel, A. Marx, H. Riss, J. Wouters (eds.) Handling Global Challenges. Leuven Centre for Global Governance Studies, Leuven, pp. 38-55
    WIENER J. B. (2008), Issues In The Comparison of Regulatory Oversight Bodies, OECD Working Party, 21-22 October 2008, Paris, p. 4 s
    WIENER J. B. and ALEMANNO A. (2010), Comparing regulatory oversight bodies across the Atlantic: the Office and Information and Regulatory Affairs in the US and the Impact Assessment Board in the EU, in ACHERMANN S. R., LINDSETH P., Comparative Administrative Law, Edward Elagar, pp. 309-335.

    Editor: Luca DI DONATO


    In the money refers to OPTIONs, and when considering a call option, it means that the STRIKE PRICE is below the market price of the UNDERLYING ASSET similarly in the money refers to a put when its strike price is above the market price of the underlying asset.

    Being in the money does not mean you will profit, it just means the option is worth exercising. This is because the option costs money to buy (premium).


    It refers to the change in consumption patterns due to the change in purchasing power; the causes can be:

    - increase in income,

    - price changes, or

    - currency fluctuations.

    For example, a decrease in the price of oil allows you to buy either more low quality oil, or a better oil for the same price, thus increasing utility of consumption. Goods typically fall into one of two categories: normal and inferior. These categorizations relate consumption of a good with a particular individual’s income. The consumption of normal goods increases as the income increases, while inferior goods decrease as the income increases. Moreover, some goods can be normal or inferior only in certain ranges of an income spectrum.


    Until December 2018, see Inclusion Income - REI
    From January 2019 the Income of Citizenship (RdC) is the most relevant social economic policy measure, in terms of size, of the Government of G. Conte in office since May 2018.
    The Citizenship Income is an economic benefit, granted to the beneficiaries identified in the Emergency Decree (m_lps.29.REGISTRO UFFICIALE.U.0000582.16-01-2019), composed of two parts:
    1. housing benefit up to € 3360 per year,
    2. income benefit of € 6000 annually multiplied by a family coefficient.
    The coordination of the RdC is in the hands of the Ministry of Labor and Social Policies, the data control platform is that of the Nationale Social Security Institute - INPS.
    The beneficiaries will be able to access the RdC, after verification by the INPS and the Municipality of residence of the possession of the requirements, on condition that they do not refuse the job offers that the employment centers will send. It will be operational in April 2019.
    Relief and rebates (on social security contributions) are introduced at the RCD for employers who will hire RdC recipients on permanent contracts.
    For people over the age of 67, the Citizenship Pension is introduced.

  • Independent Increment Process

    It is a process where sustained increases in non-overlapping time intervals, are independent random variables. So given the time:

    The random variables, equal to the increases of the process Y:

    are independent.

    When the increments suffered in intervals of equal length, are equally distributed, the process is called homogeneous with independent increments.


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

    Editor: Giuliano DI TOMMASO

  • INFLATION (Encyclopedia)

    The term inflation generally identifies an increase in the prices of goods for consumption in a predefined period of time. Inflation usually leads to an erosion of purchasing power of the legal currency of the country in which the phenomenon occurs1. Inflation is usually identified in economics with the Greek letter as follows: , where p (t) is the general price level and is its first derivative with respect to time. The derivative can be positive (inflation), negative (deflation), or null (stable prices). The increase in the general price level in percentage terms gives the rate of inflation. The basis on which to calculate the rate of inflation is the definition of a basket of goods representative of the general expenditure made by a given community, as adjusted over time according to changes in consumption of goods or their quantity.
    Among the causes that determine the phenomenon of inflation are the increasing supply of currency by the monetary authorities, the increased demand for goods and services compared to a stable supply (excess demand), the increase in prices of goods coming from abroad and the rising costs of inputs (labour and capital).
    1. Monetary inflation: monetary inflation is generally regarded as an historical period such as war, in which governments are not able to finance the massive increases in public spending through the tax burden, but they manage to do so by using the tool of money (increase in money), thus generating a surplus of instruments of payment in relation to available goods.
    2. Demand-pull inflation: it occurs when the demand for goods and services exceeds the supply (resources in the economic system), when the global demand exceeds the capacity of a given country. The excess demand can be determined by an excess of one or more of the components of the demand: Consumption, Investment, Public Expenditure, and Exports. With an increase in one or more of the above components, in the event that the offer does not observe an increase of equal value, an increase in prices will be observed, thus generating positive inflation. Demand-pull inflation is determined by the demand in contexts where the positive trend in prices generated by the aggregated demand is not offset by deflationary policies as appropriate: for example, a reduction in money by the monetary authorities, a tax increase or a reduction in public expenditure.
    3. Expected inflation: the rate of inflation of period t +1 that is being considered will be observed in period t. The study of inflation expected rates are of fundamental importance for the monetary authority, which will use this parameter for the purpose of monetary policy decisions to be made in the current period, and for the people who will use this economic parameter in the various alternative options of consumption / savings that they have to do in t = 0. The expected rate of inflation is usually expressed as follows: .
    4. Perceived inflation: the phenomenon that identifies the change in prices determined in a country, not measured according to calculations by a statistical institute but by the economic agents who live there. Typically2, there is a negligible difference between the price changes measured by the Institutes of Statistics and that paid by consumers. In particular, the debate on the profound differences between the inflation rate measured and perceived arose with great resonance as a consequence of the introduction of the Euro3 in some European countries. Specifically, it is important to stress that the measure of perceived inflation is only qualitative: information is on the trend of the perceptions, not on their size, and the data refer to the difference between the proportion of respondents who consider the price dynamics consistent or greater than the market inflation rate identified by the Institutes of Statistics. In the euro area before the introduction of the single currency (2002), the indicator of the perceptions in each country was aligned with the actual rate, while there was a gap after 2002. To date, there is no convincing explanation of why, from the adoption of the euro, the perceived and measured inflation began to spread. One explanation may be found, as the thought of L. Guiso4, in the renaming of all prices in the new currency, without the possibility for consumers to make a comparison of the prices of goods in the old currency. The learning process of euro prices starts from the prices of goods that are purchased more frequently (food, coffee, newspaper, transport tickets, etc.), then the euro price index gives consumers an idea of the general price level and its dynamics. The dynamics of prices of goods perceived by consumers are above those statistically observed after the introduction of the euro. This alone may explain why perceived and actual inflation following the introduction of the single currency are mismatched.
    1The purchasing power is the quantity of goods and services that can be bought by one unit of currency.
    2Introduction of the euro and the divergence between measured and perceived inflation. Topic of discussion in December 2004. Paolo Del Giovane and Roberto Sabbatini.
    3L'Euro e l'inflazione. Percezioni, fatti e analisi. Paolo Del Giovane, Roberto Sabatini, F. Lippi. Il Mulino 2005.
    4Inflazione percepita e rilevata. L. Guiso 2003. La voce.
    Del Giovane P., Sabbatini R. (2004). " Introduzione dell'euro e la divergenza tra inflazione rilevata e percepita". Tema di discussione-dicembre 2004. Banca d'Italia-Roma.
    Del Giovane P., Sabbatini R., Lippi F. (2005). "L'Euro e l'inflazione. Percezioni, fatti e analisi". Il Mulino.
    Del Giovane P., Sabbatini R., Fabiani S. (2008). "What's behind inflation perceptions? A survey-based analysis of Italian customers". Tema di discussione-gennaio 2008. Banca d'Italia-Roma.
    L. Guiso (2003). "Inflazione percepita e rilevata". La voce.

    Editor: Alberto Maria SORRENTINO

    © 2009 ASSONEBB


    The Information Ratio is a performance index that is "risk-adjusted ". It is described as the relationship between the Tracking Error (TE) of the fund and its Tracking Error Volatility:

    Return of the fund;
    Return of the benchmark;
    The average difference between the fund and the benchmark;
    The standard deviation of the different returns between the fund and the benchmark (Tracking Error Volatility);
    In conclusion, the IR compares the performance of a fund and its benchmark and shows the ability of the fund manager in obtaining better results than the benchmark. The higher the value of IR, the more credit can be given to the fund manager. Unlike the Sharpe Index (please see explanation), the IR does not compare the performance of a fund to an operation that is free of risk, but instead to its main parameter of reference: its benchmark.
    © 2009 ASSONEBB


    Information Society Services refer to those services which are “provided for remuneration at a distance, via electronic means, through devices of data elaboration and memorization and at the individual request of a recipient of services (endnote in italics: Directive 98/34/EC of the European Parliament and of the Council of 22 June 1998)
    These kinds of services cover a wide range of economic online activities, such as online selling of items, services which provide online information and commercial communications, those which supply research tools, data access and retrieval.
    This category also contains the transmission through a communication network, the supply of an access to a communication network, the storage of information given by a recipient of a service and video on demand services as well as the dispatching of commercial communications via electronic mail.
    Sound and television broadcastings services are not included in the Information Society Services because they are not supplied at individual request. The use of electronic mail and equivalent means of communication are not included in the services above even if they are employed in order to conclude a contract. Besides, each activity which cannot be provided at distance or via electronic means does not fall into this category.

    Editor: Valeria CHIOMA


    In the wide contest of the energy sector, oil is the energy consumers, both institutional and private, use the most (40% of the energy demand). This is due to different factors and to its specific characteristics linked to its structure, its easily transportable liquid status and utilisability as compared to carbon, low production costs, and the wide use through the energy sector. All these features make this resource still now indispensable and unavoidable despite the huge investments in the renewable energy resources.
    Recent data indicate a global energy consume of 11 billion of Gtoe (GigaTons Oil Equivalent) per year, divided into oil (40%), carbon (25%), gas (25%), water and nuclear (each one around 5%).
    Nowadays, there is a steady rise in the energy demand, characterized both by continuous ups and downs from the demand point of view, and continuous price oscillations that, even if in a different way, have distinguished the previous strong energy consume growth between the 1960s and 1970s, resulting in the important shocks of 1973 and 1979.
    A further important element to take into account is the difficulty of prediction of oil prices, where Hamilton (2008) affirms that: "It is sometimes argued that if economists really understand something, they should be able to predict what will happen next. But oil prices are an interesting example (stock prices are another) of an economic variable which, if our theory is correct, we should be completely unable to predict".
    Behind the objective difficulty to predict oil price behaviour, there is the need to analyse two different variables affecting side by side the dynamicity of oil prices first, and energy prices then, in the short and long run.
    On one side, we find the demand and supply curve relative to determinant factors such as the behaviour of the production marginal cost, investment levels, the economic growth and the oil sustainability with other resources. On the other side, both the structure of the international market and the economic policy decisions with their speculative element play a key role in formulating the price level. The effects of the behaviour of these variables into the most important financial exchanges, like New York (New York Mercantile Exchange … NYMEX) or London (London Commodity Exchange … LCE), the staggering exchanges and the spread of new energy derivatives products make it practically impossible to determine the fundamental value of the oil price or even "who and what determines what"1.
    The role of expectations, of price increases and reductions are a key-determinant both for the evaluation of the price itself, and for price forecasts in the short and long run. Marginal variations of the fundamentals, or of the price expectations, generate disruptive effects both on the supply and demand side.
    During the last years, market operators have reassessed their theories about the elasticity of the energy supply with respect to the price increments, given the low level of investments and the fact that the big oil companies find extremely difficult to plan the management of their reserves. The unsatisfactory level of investments in new technologies and the growing trend of the marginal cost curve of oil production and transportation of the oil take unitary costs of the energy supply to non-easily predictable oscillations in an ineluctable way, despite the sophisticated theoretic and econometric techniques which are widely used for the forecasts.
    If on one side there is no doubt about the character of exhaustibility of the fossil fuels and in particular of oil, it is important, on the other side, to establish if the investment on renewable resources comes from the effective oil unavailability, or from policy and economic reasons.
    About the oil availability, recent estimates given by the Exxon Mobil or "Oil and gas Journal" assess the so-called "ascertained oil reserves" in about 1200 billion barrels. There are wide discussions about these data, in particular about the concentration of the reserves and the character of uneven distribution in a few middle-west countries. Behind the character of the ascertained reserves, there is also another key element to notice: the "probable reserves" and the "unconventional reserves" as sands. On this topic, it is important to focus on the role played by industrial and economic policies in starting a virtuous circle between investments and research in new technologies in order to turn the probable and unconditional reserves in effective reserves able to account in a substantial manner on the world supply energy.
    In order to minimize costs for exploration and research activities, which are necessary to build up new wells in some remote areas, oil companies tend to acquire small firms working in limited fields, neglecting the need to invest in the direction of a new energy path.
    A further very important element is the concentration level of the oil industry that is able to advantage an oligopolistic coordination of the current and future energy supply. In this regard, being the energy market one of the most oligopolistic in the world and one of the most controversial, and considering that the production, exploration and distribution are concentrated among a small number of oil companies, the investors operating in this sector tend to have a distortion to the underinvestment facing asymmetric incentives.
    Considered the scarce level of investments, as a consequence of a shock taking the energy demand to an unexpected level different from the forecasts, the flow of revenues will immediately increase.
    The oil price, although it remains the pillar of a whole international price structure, is not the only parameter to be considered. The quotations of natural gas and carbon are unavoidable elements both in forecast scenarios and for investment decisions.
    In this framework, energy technology investments are considered key factors for a sustainable development both from a microeconomic, for the effects on a single consumer, and a macroeconomic point of view, being the monetary costs of the energy supply a fundamental component of the gross internal product, which is able to affect in a significant way the balance of payments of the energy dependent countries.
    The role of innovation and R&D in changing the path of the energy economy is extraordinarily important although this process does not assume a linear path, where through n inputs it is possible to obtain n outputs. This is due to an absence of direct results given by predefined investment levels.
    Policy makers, operators and market participants in the energy world affirm that innovation is a pervading and continuous activity for firms in a global economy that is constantly more competitive. Investments in this direction reduce energy supply costs both at a macro and micro level, with the aim of facilitating the commercialisation and the widespread of low energy consume products, and an even lower oil dependency.
    In the current scenario, the continuous oscillations between energy demand and supply in the last months have produced an important turmoil in the financial markets, where the high price levels have been the cause of a recession and a reduction of the energy demand reflecting a supply cut.
    Nowadays, the high oil prices are defined by different factors such as a growing energy demand, a less energy-intensive global economy, a low price elasticity and the failure of the government policies to increase the energy production in case of unforeseen shocks.
    Therefore, it is legitimate to believe that a concrete and sustainable answer over the mid-long term comes form innovations in the sector, rather than a steady increase in the supply of conventional energy, or even less, from an hypothetical fall of the demand in the short run. Oil and natural gas will not be able to represent the 60 or 70% of the whole energy demand anymore, and there will be the need to invest and use alternative resources. The adoption of the necessary policies to face the challenge of the energetic issue in an exhaustive and winning way will not set aside from virtuous policies in matter of energy savings, the development of generation systems and the increasing competition between operators in the energy context.
    1Alberto Clò, "Il rebus energetico" 2008, edizioni Il Mulino Contemporanea.
    Hamilton, J.D (2008) "Understanding Crude Oil Prices" NBER Working Paper n.14492.
    Sagar, A.D., Holdren, J.P (2002) "Assessing the global energy innovation system: some key issues. Energy Policy 30, 465-469.
    Ambuj D. Sagara, Van der Zwaan, B. (2006) "Technological innovation in the energy sector: R&D, deployment, and learning-by-doing" Energy Policy 34, 2601…2608.
    Elekdag, S., Lalonde, R., Laxton, D., Muir, D., Pesenti, P., (2008) "Oil price movements and the global economy: A model based-assessment", Working Paper 13792 Nber.

    Editor: Claudio DICEMBRINO
    © 2009 ASSONEBB


    1. Introduction
    Between 2008 and 2013 the Italian economy was hit by two consecutive recessions, losing 9.0% of GDP from peak to trough, making this the biggest shock to Italy’s economy, in peacetime, since 18611. Most of the fall was concentrated in the manufacturing sector, where production fell by 23.5%. In response to these developments, capital and labor demand have contracted by sizable amounts: investment is now more than one fourth below the peak of 2007 and in the same period around one million of people lost their jobs.
    In this paper we assess the combined effect of the double-dip recession on the potential output of the manufacturing sector, using three methods, based on a production function approach, on surveys among industrial firms and on statistical filters. In Sections 2 to 4 we also assess, using each method in turn, the extent to which the result for the whole manufacturing sector hinges on developments in specific subsectors.
    The three methods do not identify the same definition of potential. The survey-based method, dealt with in Section 2, in line with Malgarini and Paradiso (2010) utilizes a concept close to the ‘full capacity’ of firms’ productive physical capital. The statistical filtering approach (Section 3) captures the long-run properties of the time series of industrial production, deriving potential output by assuming that over long periods the manufacturing sector operates, on average, close to potential. Finally, the production function approach, described in Section 4, is closer to an economic definition of potential output, and rests on the assumption that production capacity which is technically feasible takes place when economically convenient.
    With these caveats, we find that the peak-to-trough (2007-13) loss of productive capacity in the Italian manufacturing sector amounts to about 11% according to the lowest estimates and reaches 17% according to the highest. The overall contraction of potential output in the manufacturing sector conceals, regardless of the chosen approach, non-trivial heterogeneity among subsectors. Large losses of potential capacity are recorded in the rubber, plastic and non-metallic mineral sector, as well as in the wood and in the basic metals and fabricated metal products sectors. On the other hand, capacity increased in the pharmaceutical sector and was broadly stationary in the food, beverages and tobacco sector.
    This quantification of the loss of potential production allows us to identify the remaining slack in each of the segments of the manufacturing sector which, in turn, is likely to affect both the speed of the (recently started) economic recovery and the strength of demand-driven inflationary pressures.
    Given that in many manufacturing sectors production was on a declining trend well before the crisis, the 2007-13 loss in potential output may provide an inaccurate estimate of the loss of capacity due to the crisis. In order to identify the role of the crisis with more precision we conduct a simple counterfactual exercise, in which actual developments in potential production are compared with an evolution of capacity in 2008-13 in line with pre-crisis historical trends.
    In a few cases the findings from the counterfactual exercise differ considerably from those based on the historical data. For example, in the textiles, wearing apparel and leather sector, according to the counterfactual analysis there was no sharp acceleration in the fall of potential output during the crisis, contrary to what a simple comparison of potential in 2007 and 2013 would suggest. In other cases, such as the basic and fabricated metal products sector and the machinery and equipment sector, the downturn in capacity during the crisis was relatively large. Finally, in some sectors, such as food, which withstood the double-dip recession well, the actual decline in potential output from 2007 to 2013 was modest overall but the fall versus the counterfactual scenario was instead substantial.

    2. Survey based methods

    In this section we follow the survey-based methodology used for the whole manufacturing sector by Malgarini and Paradiso (2010) and De Nardis (2013), to gauge both the overall loss of capacity output and the contribution of its subsectors.
    Potential production (PP) is computed as the ratio between the Manufacturing Production Index (MPI) and the Capacity Utilization rate (CU), obtained from survey data2:
    PP = MPI / CU * 100 (1)
    A bottom-up approach, in which the loss in potential manufacturing output is measured by first computing the loss attributable to each NACE rev.2 activity sector and then aggregating the results, shows that from 2007 to 2013 the reduction in potential manufacturing production amounted to 16.5%; using a top-down approach (i.e., directly applying eq. (1) to the overall manufacturing sector), the loss is roughly the same (16.7%; Table 1 and Chart B1).

    Table 1

    Capacity changes by activity sector

    Source: own calculations based on Istat data; percentage points.
    Notes: (1) direct estimates.

    Excluding the manufacture of pharmaceutical products (in which potential output rose), all activity sectors and all Main Industrial Groupings (MIGs) show a fall in production capacity ranging from -1.8% in the food, beverages and tobacco sector to -28.7% in the electrical equipment sector (Chart B2). Based on 2010 weights, the main culprits of the reduction in manufacturing potential are: the basic metals and fabricated metal products sector (3.5pp); the machinery and equipment not elsewhere classified (n.e.c.) sector (2.8pp); the manufacture of rubber, plastic and non-metallic mineral products (2.3pp). These sectors, together accounting for slightly less than 40% of total manufacturing production, explain more than 50% of the potential loss (Table B2).
    In interpreting these developments we should consider that potential output in some sectors was already contracting before 2008 (see Chart B2)3. We therefore conduct a counterfactual exercise, in which for each manufacturing sector we assume a rate of growth in 2008-13 in line with the respective average growth rates over 1999-2007; we further assume that, without the crisis, the survey based measure CU would have converged to the average recorded in the pre-crisis period, 1999-2007. The resulting simulated capacity in 2013 can be interpreted as an estimate of the potential output that could have been achieved in each sector, had the Italian economy not been stricken by the double-dip recession4. According to this counterfactual exercise (Table B2, column 2), the total loss amounted to 19.4%. While the overall figure is not very different from that of the peak-to-trough comparison, the assessment of the role of individual sectors may deviate considerably from the one above. The contribution to the overall fall in manufacturing capacity by sectors that were already shrinking before the crisis is drastically downsized (textiles and computer production, and the electrical equipment sector); on the contrary, for the pharmaceutical, food industry, and machinery and equipment sectors, which had experienced an expansion of capacity in the run-up to the crisis, the impact of the latter is magnified by counterfactual analysis. Overall, the sectoral breakdown of the total manufacturing loss appears more polarized on the basis of counterfactual analysis: the basic metals and fabricated metal products, and the machinery and equipment n.e.c. sectors (whose weight in the MPI amounts to less than 30%) account for about 46% of the loss of capacity (37.1% if one looks at the decline from 2007 to 2013).
    As a sensitivity exercise, the counterfactual analysis was repeated by attributing to each sector, for the 2008-13 period, the same average growth as in 1992-2007. In this case the total loss for the manufacturing sector reaches almost 23% (Chart 4).

    2.1 A validation of the capacity utilization data
    In order to validate the results of the survey based method, we make use of the microdata of the Bank of Italy’s Survey of Industrial and Service Firms (Invind) and of a new measure based on electricity consumption. Invind is a sample survey of industrial and service firms with 20 or more workers conducted each year in spring; while the survey has been carried out since 1972, microdata are available only since the mid-nineties.
    Manufacturing firms are asked to report their rate of capacity utilization, turnover and the average annual percentage change in the selling prices of their own goods and services. The answers are used to derive a measure of each individual firm’s actual output and, by aggregating across firms, (a proxy of) the MPI series. Equation (1) can then be computed using the latter aggregate figure, combined with the CU rate, in order to recover series of potential output for both the manufacturing sector and its subsectors5. Chart B3 compares the Istat and the Bank of Italy survey measures of CU. The dynamics are very similar in most sectors; higher CU in Invind data reflects sample selection, as this survey mostly includes large firms. In some sectors, however, the possibility of using Invind data as a comparison with Istat is hampered by the small number of observations. Chart 1 (left panel) plots the average growth rate of real output derived from Invind data against the one derived from official Istat MPI data. Given the clear upward bias in Invind, we correct its growth rate by subtracting the difference between the average growth rate of Invind and that of the Istat series from 1992-2007 and we use this corrected series to compute the potential output, plotted in Chart 1 (right panel), together with the estimates derived from Istat data. Invind data are only available up to 2012; in that year, the cumulated loss with respect to 2007 amounted to 8.5%, vs. 12.1% according to the Istat data for the same period; the dynamics are remarkably similar.

    Chart 1
    Growth in output and level of potential output
    (Yearly rate of change and index 2007 = 100, respectively)

    Source: Own calculations based on Istat and Invind data.

    Following Burnside et al., (1995), we also construct an index of unutilized capacity based on the ratio between electricity consumption and the stock of capital. We combine data on electricity consumption in the manufacturing industry (provided by Terna, the Italian electricity transmission grid operator) and on the stock of net capital (by Istat). The ratio is rescaled to equal the Istat CU rate in 1991. The bottom of Chart B3 shows that this electricity based measure tracks the changes of the Istat series well, but contracted more sharply during the recession.

    3. Statistical filters methods
    A second approach to estimate potential output rests on statistical filters. Specifically, we apply the Hodrick-Prescott filter (HP) and the Band-Pass Christiano-Fitzgerald filter (CF) to the quarterly series of industrial production. The overall loss thus obtained is in line with those estimated with the survey based method: the average of the two filters indicates that total manufacturing capacity loss during the crisis amounted to 16.6% (15.4% with HP; 17.9% with CF), which is basically the same estimate as with the survey based approach.
    Looking at the sectoral breakdown, there is only one sector for which the discrepancy between the statistical filter estimate and the survey based one is larger than 3 pp in absolute value (machinery and equipment n.e.c.); only in two other sectors does it exceed 1.5 pp; overall, the mean absolute discrepancy is 1.0 pp, pointing to fairly consistent findings with these two methods (Table B2).
    The counterfactual experiment leads to similar conclusions6. The total loss amounts to 19.0% in the average of the two filters (17.9% for HP and 20.1% for CF). At a sectoral level, the mean absolute discrepancy with respect to the survey-based measure is somewhat larger (1.6 pp, with four sectors differing more than 4 pp).

    4. Production function approach
    The estimates of the dynamics of production capacity based on surveys and statistical filters are very much in line with the dynamics of output itself. Those methods ignore the economic motivations underlying production choices and the demand for production factors. The production function (PF) approach overcomes these limitations, by allowing an explicit role for economic considerations in determining production and factor demand.

    Consider a standard Cobb-Douglas function:
    The level of production (Y) is the result of the contribution of employment (L), the stock of capital (K) and multi-factor productivity (TFP). The overall contribution of capital depends on K itself, as well as on a measure of capital utilization (Uk).
    In this framework, potential output is the production that can be attained if labour, capital, Uk and the TFP are at their respective equilibrium levels. Potential employment (L*) is derived according to the following relation:
    L* = LF* ? (1-NAIRU) (3)
    where LF* is the trend labour force participation and NAIRU is the Not Accelerating Inflation Rate of Unemployment.
    This representation of potential output relies on a number of crucial assumptions. The choice of the simple standard Cobb-Douglas in equations (2) and (3) implicitly amounts also to assuming: a) malleability of capital and fixed elasticity of substitution between factors; b) constant returns to scale; c) the existence of an equilibrium rate of unemployment (NAIRU). The equilibrium values of the various factors are at least to some extent obtained with statistical filters: in our case, the estimates of the equilibrium values of LF* and TFP are extracted by means of a Christiano-Fitzgerald filter, applied to actual data.
    One advantage of the PF approach is that it allows us to quantify the contribution to potential output of each production factor. In our case, this advantage also has a drawback: since we are interested in the potential production of one sector of the economy, the labour input should in principle be appropriately defined at a sectoral level too. In this paper, the NAIRU for the whole Italian economy is used for the manufacturing industry and all its subsectors7.
    We estimate potential output for the various sectors (NACE rev.2) and for manufacturing as a whole (see Appendix A for a description of the data). In Chart B4 we compare the series of the estimated potential output, with and without the Uk correction. In the standard estimates, which do not correct for Uk, the 2013 potential in the manufacturing industry was 11.3% lower than in 2007. This estimate is considerably smaller than the one obtained with the previous two approaches (Table 3). These findings were to be expected: the PF approach hinges on computing the potential output that is consistent with the long-run equilibrium levels of the determinants of production; therefore, the resulting potential output series tends to be relatively less volatile. Despite that difference, the PF approach leads to conclusions that are qualitatively similar to the ones reached above: the size of the recent shock was unprecedented by historical comparison. Indeed, in the last six years the potential of the manufacturing sector recorded the largest fall since the start of the series in 1970; in 2013 it was back to the level of about twenty years earlier.

    Chart 2
    Contribution to potential output growth
    (Yearly rate of change)

    Source: Own calculations based on Istat and Terna data. L: contribution of labour; K: contribution of capital; TFP: contribution of the TFP Pot: annual rate of change of the potential output.

    In terms of factor determinants, about 60% of the cumulated drop of potential output in 2007-13 came from labour, while around 25% was attributable to the TFP (Chart 2). The reason why the contribution of capital is comparatively small is twofold: first, the industrial sector is characterized by a large wage share (close to 70%), therefore the contribution of K in the production function is limited; second, capital is a highly persistent variable and the fall in investments recorded during the two recessions, even if remarkably large, has not (so far) resulted in a dramatic drop of the capital stock.

    Chart 3
    Baseline contributions to capacity loss by activity sector
    (Shares by sector of activity; percentage points)

    Source: Own calculations based on Istat data; sectoral shares in percentage points; negative numbers indicate that the sector shows an increase in potential. The sum of the sectoral shares is equal to 100 for each method. For PF method, National accounts value added weights.

    In the baseline PF-based estimates, a large drop of potential output is estimated for firms producing rubber and plastics products (-19.4%) and transport equipment (-18.4%), similar to the results found following the other approaches (Table 1); a sharp decline is also estimated for other manufacturing (-23.7%) and the wood, furniture, paper and printing sector (-19.6%). Potential was broadly stable for producers of food, beverages and tobacco and increased sharply in the pharmaceuticals sector (22.4%).
    Chart 3 maps the actual contributions of each sector to aggregate manufacturing capacity loss, according to the three methods. Large differences are evident in the manufacture of pharmaceutical products (CF) and in the other manufacturing sector (CM); sizeable discrepancies are also found for the Manufacture of machinery and equipment n.e.c (CK) and in the electrical equipment production (CJ)8.

    Chart 4
    Potential output in the manufacturing sector: actual and counterfactual values according to all methods
    (Index 2007=100)

    Source: Own calculations based on Istat data.
    Notes: Bline: baseline computation for survey-based method (SB), Hodrick-Prescott filter (HP), Christiano-Fitzgerald filter (CF) and production function method (FP); Cfactual: counterfactual computation on the 1999-2007 period; Cfactual 2: counterfactual computation on the 1992-2007 period.

    Chart 4 and Table B1 show the potential output estimates for the manufacturing industry obtained with a counterfactual approach, as in Sections 2 and 3. In the counterfactual scenario, potential output would have been 7.6% higher in 2013 than in 2007, thanks to the larger increase of TFP (explaining more than half of the increase) and capital (accounting for about 40%). The large contribution of capital is due to its yearly 1.7% increase before 2008, against a slight actual decline during the crisis. In the counterfactual exercise, the TFP keeps growing by slightly less than 1% each year.
    In 2013 the baseline level of potential output in the manufacturing sector was 17.6% lower than the level in the counterfactual scenario. This estimate is smaller but not far from those computed with the survey based and filtering approaches. More than one third of the difference with respect to the counterfactual results are due to the labour input and TFP.
    Table B1 shows the fall of potential output between 2007 and 2013 in the actual and counterfactual scenarios: in line with the analyses of Sections 2 and 3, the sectors most affected by the crisis are the ones producing metals, rubber and plastic and machinery and equipment.

    5. Conclusions
    In this work we assess the loss of capacity in the Italian manufacturing industry between 2008 and 2013, when Italy was hit by two unprecedented recessions. We use an array of different approaches, based on surveys, statistical filters and a production function approach. All methods point to a sizeable fall in the level of production capacity: about 11% with the production function approach and around 17% with the other two. This is a large shock in historical terms; it implies that potential output fell back to the levels of the first half of the nineties.
    In comparing the results obtained with the different approaches one should consider that survey based methods and the statistical approaches are relatively more affected by the current changes in activity; the production function method is the least affected by the actual evolution of production, as potential output is a function of the equilibrium level of the factors.
    In order to disentangle the effect of the crisis from that due to previously ongoing sectoral trends, the loss of potential was also assessed with respect to a counterfactual scenario, in which the data replicate e pre-crisis dynamics; the resulting loss estimated amounts to almost 20%, with large differences across sectors. Firms producing basic metals, fabricated metal products and machinery and equipment are found to be the ones that were most penalized by the crisis of the last six years; by contrast, sectors that were already shrinking before 2008, such as the manufacture of textiles, appear not to have performed significantly worse during the double-dip recessions than they had in the early 2000s.

    Appendix A: data
    In this section we list and briefly describe the data sources we employed for the estimation of production capacity at both the aggregate and the sectoral level:
    Survey based methods: IP series (monthly) are NWDA and NSA; CU series (quarterly) are NWDA and NSA. In charts and computations we used four quarters moving averages of the quarterly series, to control for seasonality in capacity utilization.
    Statistical filters methods: IP series (monthly) are WDSA. Series, originally 1990.1 to 2013.12 are made quarterly and projected forward (up to 2017Q4) with an AR4 process. Series are then filtered with HP (lambda = 1600).
    Production function analysis: we use National Accounts annual data which are available since 1970. Y is the value added at factor cost; LF is derived from the National Accounts measure of employment, rescaled for the inverse of the employment rate; the NAIRU is estimated as in Bassanetti et al. (2006), using an unobserved component method; for K we use the stock of net capital as baseline but also the stock of gross capital and a third measure that simulates the faster depreciation recently estimated in Tartaglia Polcini (2013). When we apply the Uk correction we use our electricity consumption based measure described in Section 2.1 in order to avoid using the same information as in Section 2.

    Sectors (NACE rev.2)
    CA Manufacture of food, beverages and tobacco products
    CB Manufacture of textiles, wearing apparel and leather
    CC Manufacture of wood, paper products and printing
    CD Manufacture of coke and refined petroleum products
    CE Manufacture of chemicals
    CF Manufacture of pharmaceutical products
    CG Manufacture of rubber, plastic and non-metallic mineral products
    CH Manufacture of basic metals and fabricated metal products
    CI Manufacture of computer, electronic and optical products
    CJ Manufacture of electrical equipment
    CK Manufacture of machinery and equipment n.e.c.
    CL Manufacture of transport vehicles
    CM Other manufacturing

    Appendix B: additional charts and tables
    Chart B1
    Potential production for Manufacturing and Main Industrial Groupings (MIGs)
    (2005 = 100)

    Source: Own calculations based on Istat data. Green line for 70-120 scale; different colours are associated with other scales.

    Chart B2
    Potential production for Manufacturing and Sectors of activity
    (2005 = 100)

    Source: Own calculation based on Istat data. Green line for 70-120 scale; different colours are associated with other scales.

    Chart B3
    Rate of capacity utilization, by activity sector, according to Istat, the Bank of Italy Survey on industrial and service firms and Terna

    Source: Own calculations based on Istat, the Bank of Italy’s Survey on industrial and service firms and Terna data. The blue and red lines are associated with 30pp scales; different colours are associated with larger or smaller scales.

    Chart B4
    Potential output estimates, Production Function approach
    (index, 2007=100)

    Source: Own calculations based on Istat and Terna data. YPOT_XX:estimates of potential output; YPOTC_XX: estimates of potential output with correction for the capacity utilization; suffix _XX stands for the ATECO 2007 NACE rev. 2 sectors (see Appendix A).

    Table B1
    Capacity changes by activity sector

    Source: Own calculations based on Istat and Terna data; percentage points.

    Table B2 Contributions to capacity loss by activity sector
    (percentage changes of the potential =100)

    Sources: Own calculations based on Istat data; sectoral shares in percentage points; negative numbers indicate that the sector shows an increase in potential. The sum of the sectoral shares is equal to 100 for each method. (*) National accounts value added weights.

    1See Baffigi (2011).
    2The series of CU are those obtained by Istat when manufacturing firms answer the question ‘During the quarter your current rate of capacity utilization with respect to the maximum was … (in percentage)?’. The questionnaire with the exact wording of the question in Italian is available here: http://ec.europa.eu/economy_finance/db_indicators/surveys/questionnaires/index_en.htm.
    The resulting potential production refers to a ‘technical’ concept of potential output, related to the production possibility frontier, and disregards the incentives for economic activity.
    3 See Accetturo et al. (2013).
    4Note that by 2013 the simulated CU reached the average 1992-2007 rate, therefore most of the change is attributable to the MPI dynamics.
    5More details on the sample and the weights structure are in Banca d’Italia (2013). In our calculations we build the output series by recovering the real growth rate in output at the firm level (considering only the firms present in year T and year T-1) and aggregating them weighting by the firm average employment in year T.
    6 As in section 2, the counterfactual values are computed projecting from 2008Q1 onwards the pre-crisis growth trend.
    7The perfect homogeneity of the NAIRU across sectors implicitly relies on the hypothesis of perfect mobility of labour across sectors.
    8 Some of the discrepancies are due to the different sectoral weights on total manufacturing production and on total manufacturing value added.

    ACCETTURO A., BASSANETTI A., BUGAMELLI M., FAIELLA I., FINALDI RUSSO P., FRANCO D., GIACOMELLI S. and OMICCIOLI M. (2013), ‘The Italian industrial system between globalization and crisis’, Banca d’Italia, QEF, No. 193.
    BAFFIGI A. (2011), ‘Italian National Accounts, 1861-2011’, Economic History Working Papers, Banca d’Italia.
    BANK OF ITALY (2013), Survey of Industrial and Service firms, Supplements to the Statistical Bulletin.
    BASSANETTI A., CAIVANO M. and LOCARNO A., (2010), ‘Modelling Italian potential output and the output gap’, Banca d’Italia, Temi di Discussione, No. 771.
    BASSANETTI A., DOPKE J., TORRINI R. and ZIZZA R. (2006), ‘Capital, Labour and Productivity: what role do they play in the potential GDP weakness of France, Germany and Italy?’, in DE BANDT O., HERMANN H., PARIGI G. (eds.) ‘Growth and Business Cycles in France, Germany and Italy: convergence or divergence?’, Springer-Verlag Publisher.
    BURNSIDE C., EICHENBAUM M. and REBELO S. (1995), ‘Capital Utilization and Returns to Scale’, NBER Working Paper 5125.
    CHRISTIANO L.J. e FITZGERALD T.J. (2003), ‘The Band Pass Filter’, International Economic Review , vol. 44(2).
    DE NARDIS S. (2013), ‘L’eredità della crisi’, La Voce info, 25.01.13.
    MALGARINI M. and PARADISO A. (2010), ‘Measuring capacity utilization in the Italian manufacturing sector: a comparison between time series and survey models in light of the actual economic crisis,’ ISAE WP n. 129.
    TARTAGLIA POLCINI R. (2013), ‘Service lives of other machinery & equipment in Italy: evidence from business survey data’, Appunto per il Direttorio, 16 dicembre 2013, Banca d’Italia.

    Editor: Libero MONTEFORTE and Giordano ZEVI

  • INSURANCE COMPANY (Encyclopedia)

    Since the market where economic agents work lacks the certainties that could determine ex ante the results that can be obtained from any financial transaction, one can derive that an element of risk is associated with any economic decision. As a consequence, given that risk is an essential component of any economic system, it is necessary to adopt behaviours that will take precautions in order to face events that could cause serious damage.The first step is to identify the risk and then to undertake an assessment of it (based on the aversion degree) to decide about its exposure and, in case of negative exposure, to find a way to avoid it, or to control it, or to transfer it to another subject. To prevent, control or transfer the risk are the three ways of managing it. The third way is the one that generates the concept of insurance company, through which, on the basis of a contract, the risk is moved to a third party. Indeed, following the payment of a premium1, the insurance company undertakes the risk to compensate the damage that could be suffered as the result of the occurrence of an event foreseen by the insurance contract. In this way, it is possible to transform a situation of risk in a situation of certainty.
    The basic principle of the insurance mechanism consists in bringing together people who have homogeneous risks in order to reduce the probability of experiencing substantial damage vis-à-vis an increased likelihood of incurring in much more limited disbursements. The need to have an always increasing number of subjects, who have homogeneous risk and who want to assure it, can be easily understood given that the insurance mechanism works according to the known "law of large numbers": by increasing the number of subjects that assure homogeneous and not related risks it is possible, given the premium paid by everyone, to reimburse those for whom the risky event takes place and to generate a profit in which reason the risk is managed. However, as the number of insured subjects increases, the difficulties in managing the risk also grow due to the complexity/difficulty of having a complete knowledge of every individual that intends to cover the risk by entering into an insurance contract. Therefore, it is clear that in order to manage third party risks there is a need to rely on specialized subjects, the so-called insurance intermediaries.
    An insurance company must comply with the concept of "economic financial viability", under which the premiums collected should be sufficient to cover the costs of compensation, operating costs and to generate an adequate return on capital invested by shareholders. Therefore, the acquisition of premiums charged to the payment of benefits becomes an essential condition. Insurance companies experience the so-called inverted economic cycle: the company collects revenues well before supporting and knowing the exact amount of its costs2. The activities of an insurance company develop along the following lines:
    a) to quantify the premiums on the basis of assumptions concerning the probability of occurrence of the events against which policies have been estimated, as well as the level of final performance and of management costs;
    b) to set aside part of the revenues as a reserve to face future liabilities;
    c) to manage reserves in activities that could preserve their value over time though generating a minimum yield;
    d) to develop appropriate management techniques in order to identify all risks that must be faced by an insurance company, given that insurance companies are characterized by certain revenues but uncertain costs.
    Insurance companies have to deal with two different management sectors: the technical management and the financial one. In the first sector, experts evaluate different samples that can define various classes of risk to allow the insurance company to carry out its business in the most economic way, to define premium values, the type of distribution of policies and the establishment of the "risk portfolio" by providing claim management and liquidation of damage reimbursements.
    Financial management is based on the management of funds acquired through premiums both for liquidity management (payments, operational costs, reimbursements paid to maintain the right balance between short term cash and related commitments) and for the management of real and financial investments made by equity or reserves, to ensure solvency over time.
    According to some scholars3, with regard to monitoring and management of risks (risks that are mostly the same as those of bank intermediaries), insurance companies assume the same reference models that are applied to banking.
    The main capability of an insurance company is to formulate correct predictions on the basis of which premiums should be calculated so that it would be possible to cover compensation and the management costs and to ensure a good level of revenue for the company. The premium paid is made up of two components: one called "pure-premium"4, which is used to deal with insurance benefits only, and another characterized by "uploads", which is that part used to cover operating costs and the generation of profit for the insurer.
    Essential features for the risks to be insured are:
    a) the high number of subjects exposed to the same risk;
    b) the measurability of the risk: in order to determine the premium for the transfer of a risk, it is essential to know the probability of occurrence and the magnitude of the average loss possibly generated);
    c) the homogeneity and independence of the insured risks:in order to be insured, two risks must be unrelated to each other;
    d) the independence of the probabilities of occurrence of the risk from the behaviour of the insured subject (moral hazard);
    e) the non-speculative nature of the risk: only the risks which, if occurring, involve economic damage to the insured subject can be insured.
    Information is essential for a proper management of insurance companies and it is the basis for any management decision. To cope with adverse selection and moral hazard problems, insurance companies can try to know in more detail the behaviour of insured subjects and use measures to counteract and discourage these phenomena.
    To this end, insurance companies should adopt adequate information systems similar to those applied by banks, also aimed at the resolution and/or minimization of the consequences of adverse selection and moral hazard5.
    Risk management is an increasingly important function of insurance companies. The ability to manage risks and to minimize the financial and economic imbalances still allowing the solvency for the insurers constitutes a substantive point on which the management of an insurance company is founded.
    The insurance risk relates mainly to the technical/insurance management, and it concerns the possibility that premiums collected are not sufficient to face the insured risk. The insurance risk assumes that at the date of the policy signature at least one of the following points is uncertain:
    a) the occurrence of the event;
    b) the time when the event will occur;
    c) the economic impact for the insurer.
    The risk that qualifies the contract as "insurance"6 must also be a pre-existing risk and it must exist independently of the contract.
    A different risk from the insurance risk is the operational risk. The latter is related to incorrect operation of the internal business of the insurance or to misconduct or fraud of the insured.
    The risks in financial management are related to the possibility that the value of assets held in the portfolio is inadequate at the time of the payment of benefits to the insured subject. The financial risk is different from the insurance risk and it is present each time the insurance company takes a credit risk, market risk, a foreign exchange risk, a risk of price variation/index of securities or commodities7.
    Financial risk management does not present more specific evidence than that achieved by any other financial intermediary, such as a bank. Possible risk management techniques may be as follows:
    a) techniques for integrated management of assets and liabilities;
    b) technical risk avoidance through derivatives;
    c) management techniques - called "reassurance" - that allow the company to rebalance the composition of their risk-portfolio to reduce the probability that any given event might cause damage such as to endanger its stability8.
    The distribution channels of insurance products are agents, brokers, banks, the direct channel and the phone/internet channel. Agents operate on behalf of the insurance company while their remuneration is based on fees related to the volume of premiums collected and the various types of insurance coverage distributed. Brokers act as mediators between insurance companies and their customers not being bound by any agreement with any single insurance company. The distribution through the bank is a recent phenomenon, motivated by the need felt by these two types of intermediaries that include (a) distribution cost reduction, (b) implementation of joint sales strategies offering a complete range of products designed to meet all customer financial needs and (c) stimulation of cross-selling9 activities. The insurance products distributed through banks are mostly standardized products such life policies and unit linked index, civil liability car policies and death risks linked to the repayment of mortgage loans. This channel allows to take advantage of customer relationships already available to banks and to lower fees usually applied by banks vis-à-vis those applied by agents or brokers.
    The direct channel is represented by insurance company employees while the use of the telephone channel and/or of the Internet is constantly increasing to sell the most standardized products such as civil liability car insurances.
    Among the products that an insurance company can market, it is necessary to distinguish between insurable events depending on the length of human life and those depending on any other circumstances that may relate to any given subject. In the first case, we talk about life insurance; in the second case, we talk about indemnity insurance.
    Hence, the insurance business is divided into two branches10: life insurance and indemnity insurance.
    The premium paid is not to be regarded as a fee for the entitlement to a future refund, but rather as the price of a potential performance that would materialise only if the feared event occurred.
    Along a parallel with banking intermediaries that have an economic cycle opposite to that of insurance intermediaries a combination of the two budgets - the banking one, where a longer duration of assets is experienced , and the insurance one, which has instead a longer duration of liabilities - involves certain advantages in terms of ALM (Asset & Liabilities Management), See Ruozi (2004) "Economics and management of the bank," Egea publisher.
    See Ruozi (2004), "Economics and management of the bank," Egea publisher.
    An example of the determination of a pure premium can be done by assuming that you want to assure 1000 cars with an average 10% annual frequency of claims and an average refund cost of € 800 per claim; the requirements of the insurance company to guarantee coverage to all insured is 800 multiplied by 100 equivalent to € 80,000; as a consequence the premium will be equal to 80,000 divided by 1000, i.e. 80 Euros.
    Financial conglomerates, the result of integration between banks and insurance companies, have access, through integrated information systems, to a complete operational management of their customers, thus providing banking and insurance products close to their needs.
    6A contract is defined as insurance when one party (the insurer) accepts significant risks by agreeing to indemnify the other party (the policyholder) when a specified uncertain event has adverse effects on the latter.
    7In general, non-life insurance firms are more exposed to the insurance risk, while life assurance companies are more exposed to the financial risk.

    or a more detailed analysis, please refer to "reinsurance" techniques.
    ross-selling means that the bank and / or insurance selling services consist of multiple overlapping products: examples of such services are loans on real estate that include insurance on their repayment.
    The term "branch" stands for "groupings" of homogeneous risks.

    Capriglione F. (2005). "L'ordinamento finanziario italiano". Padova. CEDAM
    Desiderio Luigi, Molle Giacomo. (2005) "Manuale di diritto bancario e dell'intermediazione finanziaria", Giuffrè editore.
    Guida Roberto. (2004) "La Bancassicurazione: modelli e tendenze del rapporto tra banche e assicurazioni", Cedam editore.
    Locatelli Rossella, Morpurgo Cristina, Zanette Alfeo. (2002) "L'integrazione tra banche e compagnie di assicurazione e il modello dei conglomerati finanziari in Europa", Enaudi editore.
    Patroni Griffi and Ricolfi. (1997) "La distribuzione bancaria di prodotti assicurativi in banche ed assicurazioni fra cooperazione e concorrenza", Giuffrè editore.
    Quagliariello Mario. (2001) "I rapporti tra banche e assicurazioni in Italia e in Europa: aspetti empirici e problemi di regolamentazione", Luiss University Press.
    Quagliariello Mario. (2003) "La bancassicurazione: profili operativi e scelte regolamentari", Luiss University Press.
    Ruozi Roberto. (2004) "Economia e gestione della banca", Egea editrice.

    Editor: Alberto Maria SORRENTINO
    © 2009 ASSONEBB

  • Intellectual Property Right (Encyclopedia)

    Intellectual Property Rights (IPR) is the collective name for new and unique ideas, products and creations resulting from human creativity and innovation. Copyright, Trademarks, Patents, Database Rights and Performance Rights are the most relevant rights with regards to those that may apply to digital content too. Once a creative endeavour or innovation is protected, like property, the associated rights can be traded, bought and sold, bequeathed and licensed.

    Intellectual Property Rights have become ubiquitous in the economic debate: the front pages of newspapers continually report major controversies among corporations, Government and advocacy groups. National parliaments, the European Union and the North Atlantic Free Trade Association are repeatedly addressing the issue. Above all, IPRs have become one of the core business of the World Trade Organization. Indeed the “Trade Related Aspects of Intellectual Property Rights” Agreement, a founding element of the WTO, constitutes the most imporatnt attempt to establish a global harmonisation of Intellectual Property (IP) protection and enforcement, creating international standards for the protection of patents, copyrights, trademarks and design. In a word, IPRs have emerged as the key issue of global innovation policy. Intellectual Property (IP) refers to creations of the mind: inventions, literary and artistic works, and symbols, names, images, and designs used in commerce. IP is divided into two categories:

    - Industrial Property, which includes inventions (patents), trademarks, other distinctive signs, industrial designs and geographic indications of source, topographies of products and semiconductors, the utility models, confidential business information and new variety of plants;

    - and Copyright, which includes literary and artistic works such as novels, poems and plays, films, musical choreographic and pantomimic works, artistic works such as drawings, paintings, photographs and sculptures, and architectural designs, along with computer programs and databases.

    Rights related to copyright include those of performing artists in their performances, producers of phonograms in their recordings, and those of broadcasters in their radio and television programs. These rights arise from the very moment in which the intellectual work takes shape and recognize the author exclusive right of exploitation of the work itself. Although the property law over the creative work is unique, lawmakers have attributed to the authors a number of specific indipendent rights in order to encourage them to use protected works economically. It should also be noted that, even during a transfer of exploitation rights concerning the protected work, be the transfer either permanent or temporary, the author retains the moral right to claim the autorship of the work and to object to any distortion, mutilation or other change provoking damage to the work itself or prejudice to its honour or reputation.


    The modern patent system, based on the objectives assessments of inventions, was introduced by the Venetian republic in 1474. The two requirements indicated by the Venetian Republic … the usefulness and novelty of the invention … are still in vigour today in all states. In substance the inventor and the Government undertake a long-term pact: the inventor commits him/herself to disclose all information of his/her invention, while the Government guarantees that it will provide legal protection to give exclusive rights on the economic returns of the invention.

    IPRs have evolved substantially over the centuries but the long-term pact between inventor and Government has remained unchanged.

    By providing intellectual property rights, the Government assures the inventor the right to exclude others from using the outcome of his/her creative activities without his/her authorisation. Thus the Government gives the inventor a legal monopoly to exploit his/her invention and capture the economic benefits for a limited period of time.

    But legislation is far from uniform: for copyright the disclosure is complete by the moment you publish a book or a film, while inventions generally have to pass a merit exam before being granted a patent. As happens with many deals, this one is rarely fully implemented and the inventor often tries to hide as much as possible about his/her invention, while the Government is not in a position to assure full appropriation of the returns of the invention.
    Through this deal, the Government manages to disclose information on the already generated knowledge, and perhaps more importantly it provides an incentive to individuals to invest their time and resources in creative activities. Creative activities are in fact time-consuming and costly while it is always uncertain if they will produce something that will generate economic returns.

    Once the inventor has discovered a new device or a musician has written a new symphony, it becomes easy for others to exploit their outcomes at very low costs. Without legal protection inventors and authors are not in a position fully to exploit their works and appropriate the economic returns. As a result, in the absence of public regulation there would be an under-investment in creative activities that would be below a socially desirable level.

    An IPR regime can be defined as the written and customary rules that apply within a specific political community. In some countries, the Government enforces strong protection of IPRs and the holders are guaranteed that any infringements will be persecuted by the law and compensation will be obtained. These are the strong IPRs regimes. In other countries, the IPRs regime is much weaker and there is much less public interest in enforcing IPRs. Policing violation is much more relaxed and courts are slow and/or permissive towards infringement.

    Modern usage of the term intellectual property goes back at least as far as 1867 with the founding of the North German Confederation whose constitution granted legislative power over the protection of intellectual property to the confederation. When the administrative secretariats established by the Paris Convention (1883) and the Berne Convention (1886) merged in 1893, they located in Berne, and also adopted the term intellectual property in their new combined title, the United International Bureaux for the Protection of Intellectual Property. The organisation subsequently relocated to Geneva in 1960, and was succeeded in 1967 with the establishment of the World Intellectual Property Organization (WIPO) by treaty as an agency of the United Nations. Until recently, the purpose of intellectual property law was to give as little protection possible in order to encourage innovation. Historically, therefore, they were granted only when they were necessary to encourage invention, limited in time and scope.

    Identification of IP concept

    Intellectual Property, very broadly, means the legal rights which result from intellectual activity in the industrial, scientific, literary and artistic fields. Countries have laws to protect Intellectual Property for two main reasons. One is to give statutory expression to the moral and economic rights of creators in their creations and the rights of the public in access to those creations. The second is to promote, as a deliberate act of Government policy, creativity and the dissemination and application of its results and to encourage fair trading which would contribute to economic and social development.

    Generally speaking, intellectual property law aims at safeguarding creators and other producers of intellectual goods and services by granting them certain time-limited rights to control the use made of those productions. Those rights do not apply to the physical object in which the creation may be embodied but instead to the intellectual creation as such. Intellectual property is traditionally divided into two branches, “Industrial Property” and “Copyright.”

    The Convention Establishing the World Intellectual Property Organization, concluded in Stockholm on July 14, 1967 provides that “intellectual property shall include rights relating to:

    - literary, artistic and scientific works,
    - performances of performing artists, phonograms and broadcasts,
    - inventions in all fields of human endeavour,
    - scientific discoveries,
    - industrial designs,
    - trademarks,
    - service marks and commercial names and designations,
    - protection against unfair competition,
    - all other rights resulting from intellectual activity in the industrial, scientific, literary or artistic fields.”

    The areas mentioned as literary, artistic and scientific works belong to the copyright branch of Intellectual Property. The areas mentioned as performances of performing artists, phonograms and broadcasts are usually called “Related Rights,” that is, rights related to copyright. The areas mentioned as inventions, industrial designs, trademarks, service marks and commercial names and designations constitute the Industrial Property branch of Intellectual Property. The area mentioned as protection against unfair competition may also be considered as belonging to that branch.

    The expression “Industrial Property” covers inventions and industrial designs. Simply stated, inventions are new solutions to technical problems and industrial designs are aesthetic creations determining the appearance of industrial products. In addition, Industrial Property includes trademarks, service marks, commercial names and designations, including indications of source and appellations of origin, and protection against unfair competition. Here, the aspect of intellectual creations-although existent-is less prominent, but what counts here is that the object of Industrial Property typically consists of signs transmitting information to consumers, in particular as regards products and services offered on the market, and that the protection is directed against unauthorized use of such signs which is likely to mislead consumers, and misleading practices in general.

    Scientific discoveries, the remaining area mentioned in the WIPO Convention, are not the same as inventions. The Geneva Treaty on the International Recording of Scientific Discoveries (1978) defines a scientific discovery as “The recognition of phenomena, properties or laws of the material universe not hitherto recognized and capable of verification”. Inventions are new solutions to specific technical problems. Such solutions must, naturally, rely on the properties or laws of the material universe (otherwise they could not be materially or technically applied), but those properties or laws need not be properties or laws “not hitherto recognized.” An invention puts to new use, to new technical use, the said properties or laws, whether they are recognized simultaneously with the making of the invention or whether they were already recognized before, and independently of, the invention.

    Fields of Intellectual Property Protection

    Common types of intellectual property rights include patents, copyright, industrial design rights, trademarks, trade dress, and in some jurisdictions trade secrets. There are also more specialized varieties of sui generis exclusive rights, such as circuit design rights, plant breeders’ rights, plant variety rights, supplementary protection certificates for pharmaceutical products and database rights (in European law).


    A patent is a document, issued, upon application, by a Government office (or a regional office acting for several countries), which describes an invention and creates a legal situation in which the patented invention can normally only be exploited (manufactured, used, sold, imported) with the authorization of the owner of the patent. “Invention” means a solution to a specific problem in the field of technology. An invention may relate to a product or a process. The protection conferred by the patent is limited in time (generally 20 years). Patents are frequently referred to as “Monopolies”, but a patent does not give the right to the inventor or the owner of a patented invention to make, use or sell anything. The effects of the grant of a patent are that the patented invention may not be exploited in the country by persons other than the owner of the patent unless the owner agrees to such exploitation. Thus, while the owner is not given a statutory right to practice his invention, he is given a statutory right to prevent others from commercially exploiting his invention, which is frequently referred to as a right to exclude others from making, using or selling the invention. The right to take action against any person exploiting the patented invention in the country without his agreement constitutes the patent owner’s most important right, since it permits him to derive the material benefits to which he is entitled as a reward for his intellectual effort and work, and compensation for the expenses which his research and experimentation leading to the invention have entailed. It should be emphasized, however, that while the State may grant patent rights, it does not automatically enforce them, and it is up to the owner of a patent to bring an action, usually under civil law, for any infringement of his patent rights. Simply put, a patent is the right granted by the State to an inventor to exclude others from commercially exploiting the invention for a limited period, in return for the disclosure of the invention, so that others may gain the benefit of the invention. The disclosure of the invention is thus an important consideration in any patent granting procedure.

    Copyright and Related Rights

    Copyright law is a branch of that part of the law which deals with the rights of intellectual creators. Copyright law deals with particular forms of creativity, concerned primarily with mass communication. It is concerned also with virtually all forms and methods of public communication, not only printed publications but also such matters as sound and television broadcasting, films for public exhibition in cinemas, etc. and even computerized systems for the storage and retrieval of information. Copyright deals with the rights of intellectual creators in their creation. Most works, for example books, paintings or drawings, exist only once they are embodied in a physical object. But some of them exist without embodiment in a physical object. For example music or poems are works even if they are not, or even before they are, written down by a musical notation or words. Copyright law, however, protects only the form of expression of ideas, not the ideas themselves. The creativity protected by copyright law is creativity in the choice and arrangement of words, musical notes, colours, shapes and so on. Copyright law protects the owner of rights in artistic works against those who copy, that is to say those who take and use the form in which the original work was expressed by the author.


    A trademark is … according to the WIPO - any sign that individualizes the goods of a given enterprise and distinguishes them from the goods of its competitors. This definition comprises two aspects, which are sometimes referred to as the different functions of the trademark, but which are, however, interdependent and for all practical purposes should always be looked at together. In order to individualize a product for the consumer, the trademark must indicate its source. This does not mean that it must inform the consumer of the actual person who has manufactured the product or even the one who is trading in it. It is sufficient that the consumer can trust in a given enterprise, not necessarily known to him, being responsible for the product sold under the trademark. The function of indicating the source as described above presupposes that the trademark distinguishes the goods of a given enterprise from those of other enterprises; only if it allows the consumer to distinguish a product sold under it from the goods of other enterprises offered on the market can the trademark fulfil this function. This shows that the distinguishing function and the function of indicating the source cannot really be separated.

    Industrial Designs

    Industrial design, in a lay or general sense, refers to the creative activity of achieving a formal or ornamental appearance for mass-produced items that, within the available cost constraints, satisfies both the need for the item to appeal visually to potential consumers, and the need for the item to perform its intended function efficiently. In a legal sense, industrial design refers to the right to protect the original ornamental and non-functional features of an industrial article or product that result from design activity. Visual appeal is one of the considerations that influence the decision of consumers to prefer one product over another, particularly in areas where a range of products performing the same function is available in the market. In these latter situations, if the technical performance of the various products offered by different manufacturers is relatively equal, aesthetic appeal, along with, of course, cost, will determine the consumer’s choice. The legal protection of industrial designs thus serves the important function of protecting one of the distinctive elements by which manufacturers achieve market success. In so doing, by rewarding the creator for the effort which has produced the industrial design, legal protection serves as an incentive to the investment of resources in fostering the design element of production.

    Integrated Circuits

    Another field in the protection of intellectual property is that of layout-designs (topographies) of integrated circuits. The layout-designs of integrated circuits are creations of the human mind. They are usually the result of an enormous investment, both in terms of the time of highly qualified experts, and financially. There is a continuing need for the creation of new layout-designs which reduce the dimensions of existing integrated circuits and simultaneously increase their functions. The smaller an integrated circuit, the less the material needed for its manufacture, and the smaller the space needed to accommodate it. Integrated circuits are utilized in a large range of products, including articles of everyday use, such as watches, television sets, washing machines, automobiles, etc., as well as sophisticated data processing equipment. Whereas the creation of a new layout-design for an integrated circuit involves an important investment, the copying of such a layout-design may cost only a fraction of that investment. Copying may be done by photographing each layer of an integrated circuit and preparing masks for its production on the basis of the photographs obtained. The possibility of such copying is the main reason for the introduction of legislation for the protection of layout-designs.

    Geographical Indications

    “Champagne,” “Cognac,” “Roquefort,” “Chianti,” “Porto,” “Havana,” “Tequila,” are some well-known examples for names which are associated throughout the world with products of a certain nature and quality. One common feature of all those names is their geographical connotation, that is to say, their function of designating existing places, towns, regions or countries. However, when we hear these names we think of products rather than the places they designate. Those examples show that geographical indications can acquire a high reputation and thus may be valuable commercial assets. For this very reason, they are often exposed to misappropriation, counterfeiting or forgery, and their protection - national as well as international - is highly desirable.

    Protection Against Unfair Competition

    Protection against unfair competition has been recognized as forming part of Industrial Property protection for almost a century. It was in 1900, at the Brussels Diplomatic Conference for the Revision of the Paris Convention for the Protection of Industrial Property that this recognition was first manifested by the insertion of Article 10bis in the Convention. In according to this article the countries of the Union are bound to assure to nationals of such countries effective protection against unfair competition. Any act of competition contrary to honest practices in industrial or commercial matters constitutes an act of unfair competition. The following in particular shall be prohibited:

    - all acts of such a nature as to create confusion by any means whatever with the establishment, the goods, or the industrial or commercial activities, of a competitor;

    - false allegations in the course of trade of such a nature as to discredit the establishment, the goods, or the industrial or commercial activities, of a competitor;

    - indications or allegations the use of which in the course of trade is liable to mislead the public as to the nature, the manufacturing process, the characteristics, the suitability for their purpose, or the quantity, of the goods.

    At first glance, there seem to be basic differences between the protection of Industrial Property rights, such as patents, registered industrial designs, registered trademarks, etc., on the one hand, and protection against acts of unfair competition on the other. Whereas those Industrial Property rights are granted on application by Industrial Property offices and confer exclusive rights with respect to the subject matter concerned, protection against unfair competition is based not on such grants of rights but on the consideration - either stated in legislative provisions or recognized as a general principle of law - that acts contrary to honest business practice are to be prohibited. Nevertheless, the link between the two kinds of protection is clear when certain cases of unfair competition are considered. For example, in many countries unauthorized use of a trademark that has not been registered is considered illegal on the basis of general principles that belong to the field of protection against unfair competition (in a number of countries such unauthorized use is called “passing-off”). There is another example of this kind in the field of inventions: if an invention is not disclosed to the public and is considered to constitute a trade secret, the unauthorized performance by third parties of certain acts in relation to that trade secret may be illegal.


    The stated objective of most intellectual property law (with the exception of trademarks) is to "Promote Progress." By exchanging limited exclusive rights for disclosure of inventions and creative works, society and the patentee/copyright owner mutually benefit, and an incentive is created for inventors and authors to create and disclose their work.

    Financial incentive and economic growth

    These exclusive rights allow owners of intellectual property to benefit from the property they have created, providing a financial incentive for the creation of an investment in intellectual property, and, in case of patents, pay associated research and development costs. The WIPO treaty and several related international agreements are premised on the notion that the protection of intellectual property rights is essential to maintaining economic growth. The WIPO Intellectual Property Handbook gives two reasons for intellectual property laws:
    One is to give statutory expression to the moral and economic rights of creators in their creations and the rights of the public in access to those creations. The second is to promote, as a deliberate act of Government policy, creativity and the dissemination and application of its results and to encourage fair-trading, which would contribute to economic and social development. The Anti-Counterfeiting Trade Agreement (ACTA) states that "Effective enforcement of intellectual property rights is critical to sustaining economic growth across all industries and globally".

    A joint research project of the WIPO and the United Nations University measuring the impact of IP systems on six Asian countries found a positive correlation between the strengthening of the IP system and subsequent economic growth. Economists have also shown that IP can be a disincentive to innovation. IP makes excludable non-rival intellectual products that were previously non-excludable. This creates economic inefficiency as long as the monopoly is held. A disincentive to direct resources toward innovation can occur when monopoly profits are less than the overall welfare improvement to society. This situation can be seen as a market failure, and an issue of appropriability.


    According to Article 27 of the Universal Declaration of Human Rights, "Everyone has the right to the protection of the moral and material interests resulting from any scientific, literary or artistic production of which he is the author". Although the relationship between intellectual property and human rights is a complex one, there are moral arguments for intellectual property. The arguments that justify intellectual property fall into three major categories:

    - lockeans argue that intellectual property is justified based on deservedness and hard work;

    - utilitarians believe that intellectual property stimulates social progress and pushes people to further innovation;

    - personality theorists believe intellectual property is an extension of an individual;

    Various moral justifications for private property can be used to argue in favour of the morality of intellectual property, such as:

    1. Natural Rights/Justice Argument: this argument is based on Locke’s idea that a person has a natural right over the labour and/or products which is produced by his/her body. Appropriating these products is viewed as unjust. Although Locke had never explicitly stated that natural right applied to products of the mind, it is possible to apply his argument to intellectual property rights, in which it would be unjust for people to misuse another's ideas. Lockeans argument for intellectual property is based upon the idea that labourers have the right to control that which they create. They argue that we own our bodies which are the labourers, this right of ownership extends to what we create. Thus, intellectual property ensures this right when it comes to production.

    2. Utilitarian-Pragmatic Argument: according to this rationale, a society that protects private property is more effective and prosperous than societies that do not. Innovation and invention in 19th century America has been said to be attributed to the development of the patent system. By providing innovators with durable and tangible return on their investment of time, labor, and other resources, intellectual property rights seek to maximize social utility. The presumption is that they promote public welfare by encouraging the "creation, production, and distribution of intellectual works". Utilitarians argue that without intellectual property there would be a lack of incentive to produce new ideas. Systems of protection such as Intellectual property optimize social utility.

    3. "Personality" Argument: this argument is based on a quote from the “Elements of the Philosophy of Right” written by Hegel (1820-21): "Every man has the right to turn his will upon a thing or make the thing an object of his will..". European intellectual property law is shaped by this notion that ideas are an "extension of oneself and of one’s personality". Personality theorists argue that by being a creator of something one is inherently at risk and vulnerable for having their ideas and designs stolen and/or altered. Intellectual property protects these moral claims that have to do with personality.

    Infringement, Misappropriation and Enforcement

    Unauthorized use of intellectual property rights, called "Infringement" with respect to patents, copyright, and trademarks, and "Misappropriation" with respect to trade secrets, may be a breach of civil law or criminal law, depending on the type of intellectual property, jurisdiction, and the nature of the action. Patent infringement typically is caused by using or selling a patented invention without permission from the patent holder. The scope of the patented invention or the extent of protection is defined in the claims of the granted patent. There is safe harbour in many jurisdictions to use a patented invention for research. This safe harbour does not exist in the US unless the research is done for purely philosophical purposes, or in order to gather data in order to prepare an application for regulatory approval of a drug. In general, patent infringement cases are handled under civil law (e.g. in the US) but several jurisdictions incorporate infringement in criminal law also (for example, Argentina, China, France, Japan, Russia, South Korea). Copyright infringement is reproducing, distributing, displaying or performing a work, or to make-derivative works, without permission from the copyright holder, which is typically the author, that is, assumed a transfer, a publisher or another businessman. It is often called "Piracy", and as well as in other casesit can obtain the inhibitory use from an unauthorized third part. Generally the copyright holder can only get money damages if the owner registers the copyright. Enforcement of copyright is generally the responsibility of the copyright holder. The ACTA trade agreement, signed in May 2011 by the United States, Japan, Switzerland, and the EU, requires that its parties add criminal penalties, including incarceration and fines, for copyright and trademark infringement, and obligated the parties to active police for infringement. Trademark infringement occurs when one party uses a trademark that is identical or confusingly similar to a trademark owned by another party, in relation to products or services which are identical or similar to the products or services of the other party. As with copyright, there are common law rights protecting a trademark, but registering a trademark provides legal advantages for enforcement. Infringement can be addressed by civil litigation and, in several jurisdictions, under criminal law. In the US, the Trademark Counterfeiting Act of 1984 criminalized the intentional trade in counterfeit goods and services and ACTA amplified the penalties. Trade secret misappropriation is different from violations of other intellectual property laws, since by definition trade secrets are secret, while patents and registered copyrights and trademarks are publicly available. In the US, trade secrets are protected under state law, and states have federal law in the form of the Economic Espionage act of 1996, which makes the theft or misappropriation of a trade secret a federal crime.


    Some critics of intellectual property, such as those in the free culture movement, point at intellectual monopolies as harming health (in the case of pharmaceutical patents), preventing progress, and benefiting concentrated interests to the detriment of the masses, and argue that the public interest is harmed by ever expansive monopolies in the form of copyright extensions, software patents, and business method patents. More recently scientists and engineers are expressing concern that patent tickets are undermining technological development even in high-tech fields such as nanotechonology.

    The World Intellectual Property Organization (WIPO) recognizes that conflicts may exist between the respect for and implementation of current intellectual property systems and other human rights. In 2001 the UN Committee on Economic, Social and Cultural Rights issued a document called "Human Rights and Intellectual Property" that argued that intellectual property tends to be governed by economic goals when it should be viewed primarily as a social product; in order to serve human well-being, intellectual property systems must respect and conform to human rights laws. According to the Committee, when systems fail to do so they risk infringing upon the human right to food and health, and to cultural participation and scientific benefits. In 2004 the General Assembly of WIPO adopted The Geneva Declaration on the Future of the World Intellectual Property Organization which argues that WIPO should "focus more on the needs of developing countries, and to view IP as one of many tools for development, not as an end in itself". Further along these lines, the ethical problems brought up by IP rights are most pertinent when it is socially valuable goods like life-saving medicines are given IP protection. While the application of IP rights can allow companies to charge higher than the marginal cost of production in order to recoup the costs of research and development, the price may exclude from the market anyone who cannot afford the cost of the product, in this case a life-saving drug.


    De George R. T. (2005), “Intellectual Property Rights”, in G. Brenkert e T. Beauchamp (a cura di), The Oxford Handbook of Business Ethics, Oxford, Oxford University Press.
    Korn N. (2005), Guide to Intellectual Property Rights and Other Legal Issues, London, Minerva Project University
    Peter K. Y. (2007). Intellectual Property and Information Wealth: Copyright and related rights, Washington, Greenwood Publishing Group. p. 346
    Raysman R. et. al (2006) Intellectual Property Licensing: Forms and Analysis, New York, Law Journal Press.
    Worl Intellectual Property Organisation (2008), “WIPO Intellectual Property Handbook: Policy, Law and Use”, WIPO Publication, No. 489 http://www.wipo.int/about-ip/en/.

    Ediotr: Francesca BERTI


    The Interbank Deposit Protection Fund, established in 1987 as a voluntary consortium, is now a private-law mandatory consortium, recognised by the Bank of Italy; the activities of which are regulated by the Statutes and by laws. In accordance with Legislative Decree 659/96, effective from January 11, 1997, the EU Directive 19/94 on deposit guarantee schemes was implemented in the Italian legislative system. The purpose of the Fund is to guarantee the depositors of member banks. Member banks undertake to pay contributions to the consortium fund and, upon request of the Fund, to make regular payments to defray operating expenses.
    Following the provisions of article 96 of Legislative Decree n. 385 of September 11, 1993, the principle of mandatory membership in a deposit guarantee system was introduced in Italy. All Italian banks (about 300) are members of the Fund, except for "mutual banks" (banche di credito cooperativo), which are members of the Deposit Guarantee System of Mutual Banks (Garanzia dei Depositanti del Credito Cooperativo). Membership is open to the branches of EU banks operating in Italy, for the purpose of supplementing deposit protection provided by their home country schemes. Non-EU banks authorised to operate in Italy are required to become members, unless the deposit protection schemes of their home countries are equivalent. Following articles 9-bis and 9-ter of Leg. Decree 385/1993, the Bank of Italy has full powers in supervising and coordinating the activities of deposit protection funds.

    The bodies of the Fund are: the General Meeting; the Board; the Executive Committee; the Chairman; the Deputy Chairman; the Board of Auditors; the Secretary General.
    The members of the Board are elected by the General Meeting, on the basis of a number of candidates, also represented by associations of member banks.
    The Chairman of the Italian Banking Association (ABI) is an ex officio member. A representative from the Bank of Italy attends the meeting.

    CHAIRMAN: Paolo Savona
    DEPUTY CHAIRMAN: Bruno Picca
    COUNSELLOR BY RIGHT: Giuseppe Mussari, Chairman of A.B.I.
    SECRETARY GENERAL: Roberto Moretti
    Chairman: Paolo Savona
    Deputy Chairman: Bruno Picca

    In alphabetical order:

    - Marco Berlanda? (Banca Popolare Soc.Coop.)?- Giovanni Berneschi? (Banca Carige S.p.A.)?- Adolfo Bizzocchi? (Credito Emiliano S.p.A.)?- Lucano Filippo Camagni? (Credito Valtellinese)?- Paolo D’Amico? (Banca Nazionale del Lavoro S.p.A.)?- Ranieri De Marchis? (Unicredit S.p.A.)?- Divo Gronchi? (Banca Popolare di Vicenza S.c.p.A.)?- Carmine Lamanda? (Unicredit S.p.A.)?- Giampiero Maioli? (Cariparma S.p.A.)?- Giuseppe Menzi? (Banca Monte dei Paschi di Siena S.p.A.)?- Carlo Messina? (Intesa Sanpaolo S.p.A.)?- Alberto Mocchi? (Banca di Desio e della Brianza S.p.A.)?- Antonio Patuelli? (Cassa di Risparmio di Ravenna S.p.A.)?- Bruno Picca? (Intesa Sanpaolo S.p.A.)?- Massimo Ponzellini? (Banca Popolare di Milano S.c.a.r.l.)?- Vito Primiceri? (Banca Popolare Pugliese S.c.p.A.r.l.)?- Fabrizio Rossi? (Banca Monte dei Paschi di Siena S.p.A.)?- Alfredo Santini? (Cassa di Risparmio di Ferrara S.p.A.)?- Flavio Trinca? (Veneto Banca S.p.A.)?- Flavio Valeri? (Deutsche Bank S.p.A.)?- Camillo Venesio? (Banca del Piemonte S.p.A.)?- Fabrizio Viola? (Banca Popolare dell’Emilia Romagna S.c.a.r.l.)?- Emilio Zanetti? (Unione di Banche Italiane S.c.p.A.)

    Chairman: Paolo Savona
    Deputy Chairman: Bruno Picca
    In alphabetical order:

    - Giovanni Berneschi? (Banca Carige S.p.A.)?- Divo Gronchi? (Banca Popolare di Vicenza S.c.p.A.)?- Alberto Mocchi? (Banca di Desio e della Brianza S.p.A.)?- Antonio Patuelli? (Cassa di Risparmio di Ravenna S.p.A.)?- Fabrizio Rossi? (Banca Monte dei Paschi di Siena S.p.A.)

    Chairman: Giovanni Salsi (Banca di Piacenza S.p.A.)
    - Francesco Passadore? (Banca Passadore & C. S.p.A.)?- Norbert Plattner? (Cassa di Risparmio di Bolzano S.p.A.)
    Supplementary auditors:
    - Giuseppe Alloccoù? (Banca Cassa di Risparmio di Savigliano S.p.A.)?- Giovanni Salsi? (Banca di Piacenza S.p.A.)

    Along with the supervisory activities and the lender of last resort function, the deposit guarantee is one of the basic elements of the safety net, which is aimed at the stability of the banking system. Through deposit guarantee, the social function of savings and the monetary function of bank intermediation are recognised and supported, and in the event of a bank failure, traumatic effects on depositors may be avoided. Directive 94/19/EC provides for a minimum level of guarantee equal to 20,000 euros for each depositor. The Italian legislator implemented the Directive 94/19/EC with the Legislative Decree n. 659 of 4 December 1996 and the Directive 2009/14/EC with the legislative decree n. 49 of 24 March 2011, effective from 7 May 2011.
    The legislative decree n. 49 of 24 March 2011 provides for the application of a maximum level of guarantee equal to 100,000 euros and a 20 working days payout limit, which may be extended by the Bank of Italy only in exceptional circumstances for a further 10 days. The payout limit starts from the compulsory administrative liquidation of the bank in accordance with article 83 of the legislative decree n. 385 of 1 September 1993 (Italian Banking Law).
    The Interbank Deposit Protection fund also compensates, up to the limits set forth in the Statutes, the depositors of members, foreign branches in Italy of EU and non-EU banks, provided that they are members of the Fund.
    According to the Statutes of the Fund (Article 27 paragraph 1) and pursuant to the Banking Law, claims eligible for reimbursement are those relating to repayable funds acquired by the members, in Euros and in foreign currency, in the form of deposits or in other forms as well as bankers’ drafts and equivalent instruments. Guarantee schemes shall make payments in cases of compulsory administrative liquidation of banks authorised in Italy according to the norms on compulsory administrative liquidation of legislative decree n. 385, 1 September 1993.
    According to art. 27 of the Fund’s Statute, the following shall be excluded from protection:
    - bearer deposits and other funds reimbursable to bearer;
    - bonds and claims arising from acceptances, promissory notes and securities transactions;
    - the banks’ share capital, reserves and other elements of capital; the financial instruments regulated by the Civil code;?- deposits arising from transactions for which there has been a conviction for crimes referred to in Articles 648 bis and 648 ter of the Penal Code;?- deposits from central government departments, regions provinces and municipalities and other local authorities;?- deposits made by banks in their own name and on their own behalf, as well as banks claims;?- deposits from: financial companies referred to in Article 59, paragraph 1 sub paragraph b) insurance companies; collective investment undertakings; other companies of the same banking group; electronic money institutions;?- deposits, including those made by nominees, from owners of significant holdings for the purpose of Article 19;?- deposits including those made by nominees, from members of the governing bodies and senior managers of the bank or of the banking groups parent undertaking;?- deposits for which the depositor has, on an individual basis obtained from the bank rates and conditions which helped to aggravate the banks financial situation on the basis of the findings of the liquidators.
    Protection is offered to the so-called "unaware (or not sophisticated) depositor", who, having no access to needed information, may not be able to evaluate the risk position of the financial institution where his or her deposits are kept.
    - Joint Account Protection
    - Certificates of deposits
    - Ciphered accounts
    - Liquidation and reimbursement

    Link: www.fitd.it


    An interest rate swap is a derivative contract in which two counterparties agree that a stream of future interest payments is exchanged for another based on a specified principal amount. Interest rate swaps usually involve the exchange of a fixed interest rate for a floating rate, or vice versa, to reduce or increase exposure to fluctuations in interest rates or to obtain a marginally lower interest rate than would have been possible without the swap. Read more: Interest Rate Swap https://www.investopedia.com/terms/i/interestrateswap.asp#ixzz4zo8KBZTD


    The Intergovernmental Panel on Climate Change (IPCC) is a scientific intergovernmental body established in 1988, which includes scientists, technicians, and officers of the United Nations. It was jointly established by the United Nations Environmental Programme (UNEP) and the World Meteorological Organization (WMO) to collect scientific, technical and socio-economic information produced worldwide, relevant for the understanding of the risk of climate change. It is organized in three Working Groups (and the Task Force on National Greenhouse Gas Inventories) dealing with climate change causes and its possible impact and options for adaptation and mitigation strategies. The IPCC has produced several comprehensive assessment Reports, Technical Papers, Special Reports, Synthesis Reports for Policy Makers and other documents on methodologies and used techniques.

    For more information on IPCC see the website: http://www.ipcc.ch/index.htm
    © 2009 ASSONEBB


    The internal rate of return (IRR) is the interest rate such that the discounted sum of net cash flows is zero. If the interest rate were equal to the IRR, the net present value would be exactly zero. The IRR cannot be determined by an algebraic formula, but it rather has to be approximated by trial and error methods.
    A project is judged to be valuable if the IRR is greater than the cost of capital. If this is the case, the project could have supported a higher discount rate than was used in the analysis, and still make a positive payoff.

    IRR = [r*; NPV=0]
    NPV = Net Present Value
    B = benefits
    C = costs
    t = time
    r = discount rate
    Editor: Carmen NOTARO
    © 2010 ASSONEBB


    The IASB is the independent standard-setting body of the IFRS Foundation. The IASB was established in 2001 following the transformation of the International Accounting Standards Committee (IASCF). Based in London, the IASB is constituted by an independent group of 15 experts appointed by the Trustees. Its mission is to develop International Financial Reporting Standards (IFRS) closely collaborating with analysts, regulators, business leaders, accounting standard-setters and the accountancy profession.
    Editor: Bianca GIANNINI
    © 2010 ASSONEBB


    The International Association for Energy Economics (IAEE) was founded in 1977 following the oil crisis of 1973 - 1974. The IAEE is an international organization headquartered in the USA and with members from over 70 countries. This association provides an interdisciplinary forum for exchanging ideas, experiences and energy issues among professionals involved in the energy economy field. The IAEE publishes two periodicals, The Energy Journal, a scientific international journal where energetic themes, both at the national and international level are discussed, and the IAEE newsletter, which is in charge of covering articles of general interest over the energetic issue. Every year, several international conferences are organized with regional meetings exclusively for IAEE members, in order to discuss the latest works of the Association and to keep the debate always on current themes.
    Editor: Claudio DICEMBRINO
    © 2009 ASSONEBB


    The International Bank for Reconstruction and Development - IBRD (or World Bank), aims to reduce poverty in middle-income countries and creditworthy poorer countries by promoting sustainable development through loans, guarantees, risk management products, and analytical and advisory services. Established in 1944 as the original institution of the World Bank Group, IBRD is structured like a cooperative that is owned and operated for the benefit of its 188 member countries. Only International Monetary Fund (IMF) member countries may be members of the IBRD. The IBRD is the main multilateral development bank in the world.

    Established with the IMF, headquartered in Washington, following the Bretton Woods Agreements (the third world organization was World Trade Organization- WTO created in 1995 after the General Agreement on Tariffs and Trade-GATT). The IBRD is part of the World Bank Group together the International Development Association (IDA), International Finance Corporation (IFC), Multilateral Investment Guarantee Agency (MIGA) and International Centre for the Settlement of Investment Disputes (ICSID).

    The IBRD is governed by the World Bank's Board of Governors which meets annually and consists of one governor per member country (most often the country's Finance Minister or Treasury Secretary). The Board of Governors delegates most of its authority over daily matters such as lending and operations to the Board of Directors. The Board of Directors consists of 25 Executive Directors and is chaired by the President of the World Bank Group. The U.S. are the largest shareholder of the IBRD, with 16.41%, and it appoint the President who traditionally gives them the right of veto decisions on the change in the composition of capital (for which it is required a majority of 85 %). Followed by Japan (7.87% ), Germany (4.49 %), France and the UK (4.31% each), China, India, Italy, Russia, Saudi Arabia (2.79% each), Brazil (2.07% ), Spain (1.75% ) and Switzerland (1.66%). The EU countries formally own 25.63 % while the Eurosystem 19.53 %.

    Initially formed to contribute financially to the reconstruction of production facilities destroyed by II World War, especially in Western Europe (the first loan of 250 million U.S. dollars was made for France in 1947) then moved to finance construction of infrastructure or of directly productive activities (industrial, mining, commercial and agricultural). Beginning in the sixties (and especially under McNamara chairmanship), like other, multilateral development bank, the IBRD starts to funds initiatives to reduce poverty, for projects related to health and education, about good governance, to protect the environment, to encourage the development of private initiative, to support reform policies and the consolidation of the economic environment. Exceptionally IBRD also executes help the balance of payments of the developing countries. The IBRD is financed by medium-long term loans and short-term transactions in market conditions (mainly in U.S. dollars, euro, yen). It grants loans at market conditions. Loans are the foreign debt of the debtor countries. IBRD raises most of its funds on the world's financial markets and has become one of the most established borrowers since issuing its first bond in 1947. The income that IBRD has generated over the years has allowed it to fund development activities and to ensure its financial strength, which enables it to borrow at low cost and offer clients good borrowing terms. The bank also gives technical assistance and advisory services in economic policy.

    Editor: Giovanni AVERSA


    The term institutional cash pool refers to large (at least US$ 1 billion), centrally managed, short-term cash balances of global non-financial corporations and institutional investors such as asset managers, securities lenders and pension funds (Pozsar, 2011). Institutional cash pools have become increasingly prominent since the 1990s, "driven by three secular developments in the non-financial corporate and institutional investor landscapes" (Pozsar, 2011).
    First, the rise of globalization and the related rise of (i) large, global corporations and centrally managed corporate cash pools, and (ii) inequality, whereby an increasingly small core of the global population controls an increasingly large share of incomes and wealth (Pozsar, 2011).
    Second, the rise of asset management, and the related rise of (i) the centralized liquidity management of mutual funds, separate accounts and hedge funds within fund complexes, and (ii) securities lending, and the related rise of cash collateral reinvestment pools (Pozsar, 2011).
    Third, the rise of derivatives-based investment styles-such as futures-based duration positioning, liability-driven investing and synthetic ETFs-which involve overlaying derivatives (such as futures and total return swaps) onto separately managed cash pools (Pozsar, 2011 and 2012).

    ICP are key players in the so-called shadow banking system, since they manage relevant resources, and look for short term safe assets (Classens et al, 2012). Regulation is opaque on such intermediaries, and statistical data are very scarce and not homogenous among different countries and regulation.


    Claessens Stijn, Zoltan Pozsar, Lev Ratnovski, and Manmohan Singh (2012) Shadow Banking: Economics and Policy, IMF Staff Discussion Note, 4th December.

    Pozsar Zoltan et al (2012), Shadow Banking, Federal Reserve Bank of New York, Staff Report, n.458.
    Pozsar Zoltan (2011), Institutional Cash Pools and the Triffin Dilemma of the U.S. Banking System, IMF Working Paper n. 190, August.


    The International Centre for Settlement of Investment Disputes (ICSID) is an autonomous international institution established to provide facilities for conciliation and arbitration of international investment disputes. ICSID plays an important role in the field of international investment and economic development and it established under the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (the ICSID or the Washington Convention). The Convention sets forth ICSID's mandate, organization and core functions. It was opened for signature on March 18, 1965 and entered into force on October 14, 1966.

    The ICSID Convention is a multilateral treaty formulated by the Executive Directors of the International Bank for Reconstruction and Development (IBRD). Although it is technically a separate entity, ICSID is chaired by the president of the World Bank, and the two organizations are well integrated, with their annual meetings being held in concert, and with ICSID’s operating expenses coming from the World Bank Group’s budget. The Convention sought to remove major impediments to the free international flows of private investment posed by non-commercial risks and the absence of specialized international methods for investment dispute settlement. ICSID was created by the Convention as an impartial international forum providing facilities for the resolution of legal disputes between eligible parties, through conciliation or arbitration procedures. Recourse to the ICSID facilities is always subject to the parties' consent.

    The ICSID has 158 member States which have signed the center's convention, which includes 157 United Nations member states and Kosovo.

    Editor: Giovanni AVERSA


    The International Development Association (IDA) is the part of the World Bank that helps the world’s poorest countries. It was established in 1960 to complement the existing International Bank for Reconstruction and Development (IBRD) by lending to developing countries which suffer from the lowest gross national income, from troubled creditworthiness, or from the lowest per capita income.

    In order to provide resources on better terms than those that are available from the World Bank, the IDA provides special “credits.” These credits are zero-interest loans that have longer payment periods of 35 to 40 years and a grace period of 10 years. These types of loans are offered to the poorest countries to help them pursue their development goals, sometimes despite disease and conflict. The IDA has 172 member countries which pay contributions every three years as replenishments of its capital. Membership in the IDA is available only to countries who are members of the World Bank, particularly the IBRD. To be eligible for support from the IDA, countries are assessed by their poverty and their lack of creditworthiness for commercial and IBRD borrowing. The association assesses countries based on their per capita income, lack of access to private capital markets, and policy performance in implementing pro-growth and anti-poverty economic or social reforms.

    Editor: Giovanni AVERSA


    The International Energy Agency (IEA) is an intergovernmental organisation built by the OECD (Organization for Economic Cooperation and Development) in 1974 following the oil crisis in 1973 -1974. The main aim of the agency is to achieve a stable energy supply (with a special focus on the oil market) and to sustain a durable economic growth stimulating a productive debate among the 28 country members through coordinating policies. During the last few years, considering the particular attention for the environmental issues at the national and international level, the IEA has decided to orientate its work toward sustainable development policies mitigating the uncertain effects of the climate change by promoting and supporting the adoption of renewable energies.
    Nuclear energy is not included into the IEA operations because the International Agency for Nuclear Energy of the OECD and the International Agency for the Atomic Energy of the United Nations operate in this sector.
    Editor: Claudio DICEMBRINO
    © 2009 ASSONEBB


    Multilateral financial organization formed in 1956 to offers investment, advisory, and asset management services to private industrial initiatives. The IFC carries out its activities as a private investor in market conditions and, for investments, it assumes the business risk with partners. The IFC has international legal personality and financial autonomy, even though it is part of the World Bank Group and it coordinates with International Bank for Reconstruction and Development (IBRD) and International Development Association (IDA). It is headquartered in Washington, D.C., United States. Its members are 176 countries and to become a IFC member it is necessary to be IBRD member. It is governed by a Board of Governors composed by member States representatives. The Board of Governors formally centralizes all powers, but delegates it to the Board of Directors which is composed of IBRD Executive Directors. The President is the same as the IBRD and IDA. The body that deals with appeals for projects funded by the IFC is Compliance Advisor Ombudsman (CAO). Although the IFC finances private sector initiatives, it may also intervene for companies with State ownership, but this companies must carry out activities reserved to the private sector and is managed on a commercial basis. The IFC limits its financing or its holding to 25% of the estimated cost of each new project (in exceptional cases even up to 35% for projects small amount), while for the expansion projects may be increased to 50%, provided that its operation does not exceed 25% of the total capitalization of the company that manages the project.

    Editors: gcl, Giovanni AVERSA


    The International Financial Market is the place where financial wealth is traded between individuals (and between countries). It can be seen as a wide set of rules and institutions where assets are traded between agents in surplus and agents in deficit and where institutions lay down the rules.
    The financial market comprises the markets strictu sensu (stock market, bond market, currency market, derivatives market, commodity market and money market), the institutions which work in them with different aims and functions (Central Bank, Ministry of Economy and Finance, Monte Titoli, Borsa Italiana and CONSOB), as well as direct/indirect policies orientated to making the market the place (not necessarily a physical place and not necessarily ruled but regulated) where the exchange between surplus and deficit units is carried out as efficiently as possible.
    With regard to policies, consideration must be given to those connected with monetary, fiscal and more structural policies, as well as those directly connected with the governance of the market itself.
    Governance in the financial market can be defined as a set of rules useful in interconnecting the agents who operate within it and the institutions. These rules define the market.
    Governance rules in a financial market can be defined at both a microeconomic and macroeconomic level.
    Microeconomic rules deal not only with individuals (single money savers, professional agents, and companies) but also with the market itself and its microstructure. Macroeconomic governance rules deal with the market as a whole, but they are also strictly connected with policies regulating the market.
    At a macroeconomic level, governance is important for the financial market in order to define every single rule of the trading process: from those which regulate the stock exchange or the Over The Counter (OTC) trades to those which define who can join the market. Moreover, great importance is given to the market microstructure, where microstructure is understood as the set of rules that makes and defines the asset exchange price. This is a main point in allowing the market to function properly. The liquidity/thickness/depth of the market depends on the price formation rules according to which the asset is traded off. At a microeconomic level, the steps to trade assets on the financial market are: listing, trading, and post-trading. The latter comprises clearing, settlement, and custody. From the market insiders’ point of view, each of these steps needs to be defined in order to conclude the exchange at a time and price previously defined. Each step has its own rules that allow those who operate in the financial market to establish their own strategy with respect to their specific expectations. The traded asset returns are linked to the definition of these rules. Each market has its own rules that deal with the microstructure. Different markets have different liquidity and this depends on the micro-rules that they themselves have established. These rules are relevant both for (official) exchange trading and for the OTC trading.
    Another class of microeconomic governance rules are those which state, for instance, who can operate in the market and how. Microeconomic rules also concern the manner in which the institutions themselves operate in the market .
    Macroeconomic rules of the financial market have a different task and are linked to the broad-spectrum policies of the market. These can indicate the required market institution, the market structure and furthermore its aims and its own monetary and fiscal policies. All these characteristics make the market unique with respect to the economy in which it works. One of the features of this uniqueness is market transparency. This characteristic is defined on the basis of (governance) rules, institutions, agents, and polices connected to it. The more people know how to complete the trading asset process, the more a market is transparent. In this manner, expectations become heterogeneous for individuals/agents and, at the same time, they reflect the information at hand, which is then elaborated depending on the different sell/buy strategies.
    This leads to the definition of expectations. Defining the role of expectations in a financial market has a two-fold purpose. The first is defined at a macroeconomic level. Expectations are defined with respect to the policies and rules to be adopted in the market.
    This leads to defining the sell/buy strategies on the basis of the role that, for instance, inflation will have in the subsequent period t+1 given the policies/rules defined in t. This kind of expectation may vary depending on the discretion that exists in defining the rules, not only at a macroeconomic level but also at a microeconomic one. The second objective is microeconomic. Agents formulate their expectations to predict asset price variations in order to determine the asset returns. This point leads back to the liquidity concept previously introduced. The different level of liquidity in the trading process determines a different formulation of expectations. In the same way, the diverse discretion utilised in setting macro-economic rules determines a different formulation of the expected inflation.
    Macroeconomic rules, as previously defined, are connected to different monetary and fiscal policies. The financial market is subjected to policies that depend mostly on the regulating institutions. At the same time, institutions are responsible for defining rules and for enforcing the application of these rules in the market. The institutions determine the rules that in turn define their field of action.
    Individuals who operate in one market have to follow these rules but, at the same time, their decision is based on the rules that a given market has set itself. Transparency, liquidity, and expectations help individuals to choose the market in order to maximise their own utility.
    The financial market examined in this manner is an extremely complex system in which rules, individuals and institutions interact. This complexity increases even more in time and space (in the case of international financial markets). In time, financial markets cover an increasingly important role in the financial saving mediation of agents at an international as well as at a national level. In space, agents have instruments at their disposal that have become increasingly more complicated and specific. These instruments are utilised through the markets of reference (stock market, bond market, currency market, derivatives market, commodities market, money market) that are a fundamental part of the financial market. Each market has its own characteristics that in turn define the contexts in which agents operate on the basis of the risk associated to them.
    Campbell, J.Y., Lo, W.A., MacKinlay, A.C., 1997, The Econometrics of Financial Markets, Princeton University Press, Princeton New Jersey;
    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


    It was founded in 1905 in Rome with the task to collect agricultural statistics and propose actions for national governments to safeguard the farmers’ interests. The delegates from forty countries taking part in the initiative, signed the founding convention on 7 January 1905. The result was the first international intergovernmental body to deal with agricultural issues at a global level. The Institute has worked until Second World War and was dissolved in 1946. Its assets and mandate were handed over to the Food and Agriculture Organization (FAO).

    The IIA had limited scope for action since article 9 of the Convention stipulated that the organization should exclusively collect and publish statistical, technical and economic information on agriculture and related issues, before bringing government attention to measures required to protect the interests of farmers and to help improve conditions for them. Although its mandate was limited, IIA promoted statistical cooperation between various countries and the standardization of criteria for research. In 1930 IIA organized the World Agricultural Census and coordinated the work of statistical institutes from many countries, collecting and publishing data on annual agricultural production and the number of farms in operation. The scientific IIA heritage on the agricultural development issues, were the main reason to transfer the FAO headquarters in Rome.

    Editor: Giovanni AVERSA



    The International Labour Organization (ILO) is the tripartite United Nation agency that brings together governments, employers and workers of its 185 member States in common action to promote decent work throughout the world. The ILO encourages this tripartism within its constituents and member States by promoting a social dialogue between trade unions and employers in formulating, and where appropriate, implementing national policy on social and economic. The ILO works with main international organizations with a mandate in the field of commerce, finance, economy, human rights and development. In recognition of its activities, the ILO was awarded the Nobel Prize for Peace in 1969.

    Economic and Political reasons for ILO foundation

    The reasons for ILO foundation can be synthesized in response to economic and political issues. After the Great War, if conditions did not improve, the growing discontent among the world's workers threatened to explode into large-scale demonstrations of unrest and possibly revolution, as had occurred in Russia in 1917 and to a lesser extent in Germany and Austria-Hungary near the end of the war.

    There was also an economic reason: without universal standards of labor that could be enforced across international borders, any country that instituted social reform would find itself at a disadvantage economically.


    Established in 1919 by the Treaty of Versailles as an affiliated agency of the League of Nations, the ILO became the first affiliated specialized agency of the United Nations in 1946.

    The unparalleled destruction wrought by the Great War of 1914-1918 led to increased support among the world's countries for just such an organization, not only to regulate labor standards for the steadily growing international population of industrial workers, but also to preserve peace in post-war world.

    For these reason, the ILO Constitution, written in 1919, by a commission of representatives from nine countries, Belgium, Cuba, Czechoslovakia, France, Italy, Japan, Poland, the United Kingdom and the United States, eventually became Part XIII of the Treaty of Versailles. It resulted in a tripartite organization, the only one of its kind bringing together representatives of governments, employers and workers in its executive bodies.

    The first annual International Labor Conference, which convened in Washington, D.C., in October 1919, issued the organization's first six conventions, which addressed, among other issues, limitations on working hours, unemployment, maternity protection and minimum working age. The following summer, the International Labor Office, the ILO's permanent secretariat, was set up in Geneva, Switzerland.

    In 1926, a Committee of Experts was set up as a supervisory system on the application of ILO standards.

    During the Great Depression, realizing that handling labour issues also requires international cooperation, the United States became a member of the ILO in 1934 although it continued to stay out of the League of Nations. In the midst of the Second World War, representatives of governments, employers and workers from 41 countries, adopted the Declaration of Philadelphia, annexed to the Constitution, still constitutes the Charter of the aims and objectives of the ILO. In 1946, the ILO became the first specialized agency, the United Nations.After the Second World War, the number of member States doubled, the Organization took on its universal character, the budget grew five-fold and the number of officials quadrupled. The ILO established the Geneva-based International Institute for Labour Studies in 1960 and the International Training Centre in Turin in 1965. The Organization won the Nobel Peace Prize on its 50th anniversary in 1969.

    Today the ILO emphasizes the importance of making decent work a strategic international goal, promoting a fair globalization and ILO's role in helping to achieve the Millennium Development Goals. As of 2012, 185 countries in the UN are members of the ILO.


    The ILO implements its mandate through three main institutions, each with a tripartite structure (governments, employers, workers), unique and distinctive feature of the Organization: International Labour Office, International Labour Conference and Governing Body.

    The International Labour Office is the permanent secretariat of the International Labour Organization. The International Labour Office in Geneva, Switzerland, composed of the permanent Secretariat and professional staff, handles day-to-day operations under the supervision of an appointed director general.

    National representatives meet annually at the International Labour Conference, also known as the parliament of Labour, where makes decisions about the ILO's general policy, work programme and budget. The ILO’s executive authority is vested in a 56-member Governing Body, which is elected by the Conference.

    The Governing Body is the executive body of the International Labour Organization (the Office is the secretariat of the Organization). It meets three times a year, in March, June and November (the November session will be rescheduled to October, as from 2013). It takes decisions on ILO policy, decides the agenda of the International Labour Conference, adopts the draft Programme and Budget of the Organization for submission to the Conference, and elects the Director-General.

    The ILO has international civil servants and technical-assistance experts working in countries throughout the world and the Tribunal that examines employment-related complaints from officials of the International Labour Office and of the other international organizations that have recognized its jurisdiction.

    Mission and Objectives

    The functions of the ILO include the development and promotion of standards for national legislation to protect and improve working conditions and standards of living. Its main aims are to promote rights at work, encourage decent employment opportunities, enhance social protection and strengthen dialogue on work-related issues. The ILO also provides technical assistance in social policy and administration and in workforce training; fosters cooperative organizations and rural industries; compiles labour statistics and conducts research on the social problems of international competition, unemployment and underemployment, labour and industrial relations, and technological change; and helps to protect the rights of international migrants and organized labour.

    The ILO works equally closely with international organizations, with a mandate in the field of commerce, finance, economy, human rights and development, as with regional organizations such as the European Union (see Strategy on sustainable development) to promote an integrated and coherent approach to decent work and fair globalization. In addition the ILO contributes to the G8 and G20 meetings.

    ILO WEBSITE, (http://www.ilo.org)


    BRANDOLINI A. (2004) Does the ILO definition capture all unemployment?, Roma, Banca d’Italia (http://www.bancaditalia.it/pubblicazioni/econo/temidi/td04/td529_04/td529/tema_529.pdf)

    DI TURI C. (2007) Globalizzazione dell’economia e diritti umani fondamentali in materia di lavoro: il ruolo dell’OIL e dell’OMC, Milano, Giuffrè editore (http://www.giuffre.it/it-IT/products/170430.html)

    ILO … OECD (2013) Short-term labour market outlook and key challenges in G20 countries, Moscow, 19 July (http://www.ilo.org/wcmsp5/groups/public/---dgreports/---dcomm/---publ/documents/publication/wcms_217546.pdf)

    MECHI L. (2012) L'Organizzazione Internazionale del Lavoro e la ricostruzione europea. Le basi sociali dell'integrazione economica (1931-1957), Roma, Ediesse, (http://www.ediesseonline.it/catalogo/storia-e-memoria/l-organizzazione-internazionale-del-lavoro-e-la-ricost)

    Editor: Giovanni AVERSA


    With its near-global membership of 187 countries, the IMF is uniquely placed to help member governments take advantage of the opportunities-and manage the challenges-posed by globalisation and, more generally, economic development. The IMF tracks global economic trends and performance, alerts its member countries when it sees problems on the horizon, provides a forum for policy dialogue, and passes on know-how to governments on how to tackle economic difficulties.


    The IMF currently has a near-global membership of 187 countries. To become a member, a country must apply and then be accepted by a majority of the existing members. In June 2009, the former Yugoslav Republic of Kosovo joined the IMF, becoming the institution's 186th member.

    Upon joining, each member of the IMF is assigned a quota, based broadly on its relative size in the world economy. The IMF's membership agreed in May 2008 on a rebalancing of its quota system in order to reflect the changing global economic realities, especially the increased weight of major emerging markets in the global economy. (For more on the quota and voice reform, please go to the section on Country Representation in the Governance section).
    A member's quota delineates basic aspects of its financial and organisational relationship with the IMF, including:


    A member's quota subscription determines the maximum amount of financial resources the member is obliged to provide to the IMF. A member must pay its subscription in full upon joining the IMF: up to 25 percent must be paid in the IMF's own currency, called Special Drawing Rights (SDRs), or widely accepted currencies (such as the dollar, the euro, the yen, or the pound sterling), while the rest is paid in the member's own currency.

    Voting power

    The quota largely determines a member's voting power in IMF decisions. Each IMF member has 250 basic votes plus one additional vote for each SDR 100,000 of quota. Accordingly, the United States has 371,743 votes (16.77 percent of the total), and Palau has 281 votes (0.01 percent of the total). The newly agreed quota and voice reform will result in a significant shift in the representation of dynamic economies, many of which are emerging market countries, through a quota increase for 54 member countries. A tripling of the number of basic votes is also envisaged as a means to give poorer countries a greater say in running the institution.

    Access to financing

    The amount of financing a member can obtain from the IMF (its access limit) is based on its quota. Under Stand By and Extended Arrangements, which are types of loans, a member can borrow up to 200 percent of its quota annually and 600 percent cumulatively. However, access may be higher in exceptional circumstances.

    SDR allocations

    Allocations of SDRs, the IMF's unit of account, are used as an international reserve asset. A member's share of general SDR allocations is established in proportion to its quota.
    The IMF provides policy advice and financing to members in economic difficulties and also works with developing nations to help them achieve macroeconomic stability and reduce poverty.
    Marked by massive movements of capital and abrupt shifts in comparative advantage, globalisation affects countries' policy choices in many areas, including labour, trade, and tax policies. Helping a country benefit from globalisation while avoiding potential downsides is an important task for the IMF. The global economic crisis has highlighted just how interconnected countries have become in today’s world economy.
    The IMF supports its membership by providing:
    - policy advice to governments and central banks based on the analysis of economic trends and cross-country experiences;
    - research, statistics, forecasts, and analysis based on the tracking of global, regional, and individual economies and markets;
    - loans to help countries overcome economic difficulties;
    - concessional loans to help fight poverty in developing countries; and
    - technical assistance and training to help countries improve the management of their economies.

    IMF and the global financial crisis

    Original aims

    The IMF was founded more than 60 years ago, towards the end of World War II. The founders aimed to build a framework for economic cooperation that would avoid a repetition of the disastrous economic policies that had contributed to the Great Depression of the 1930s and the global conflict that followed.
    Since then, the world has changed dramatically, bringing extensive prosperity and lifting millions out of poverty, especially in Asia. In many ways, the IMF's main purpose-to provide the global public with financial stability-is the same today as it was when the organisation was established. More specifically, the IMF continues to
    - provide a forum for cooperation on international monetary problems;
    - facilitate the growth of international trade, thus promoting job creation, economic growth, and poverty reduction;
    - promote exchange rate stability and an open system of international payments; and
    - lend countries foreign exchange when needed, on a temporary basis and under adequate safeguards, to help them address balance of payments problems.
    In response to the crisis, the IMF has rethought its operations in several ways:
    - By enhancing IMF lending facilities. The IMF has upgraded its lending facilities to enable it to better serve its members. It has created a new Short-Term Liquidity Facility designed to help emerging market countries with a track record of sound policies address fallout from the current financial crisis. To make its financial support more flexible and tailored to the diversity of low-income countries, it has established a new Poverty Reduction and Growth Trust, which has three new lending windows. As part of a wide-ranging reform of its lending practices, the IMF has also redefined the way it engages with countries on issues related to structural reforms of the economy.
    - By strengthening the monitoring of global, regional, and country economies. The IMF has taken several steps to improve economic and financial surveillance, which is its framework for providing advice to member countries on macroeconomic policies. It is emphasizing research into the links between the financial sector and the real economy and the sharing of cross-country experiences. It has published new guidance on how to analyse and advise on exchange rates, and it is paying more attention to the impact of the world's most important economies on other countries' economies. Finally, it is improving its ability to warn member countries of risks and vulnerabilities in their economies.
    - By helping resolve global economic imbalances. The IMF's analysis of global economic developments, contained in its World Economic Outlook, provides finance ministers and central bank governors with a common framework for discussing the global economy. The IMF now has also the ability to call for multilateral consultations to discuss specific problems facing the global economy with a selected group of countries-an innovative way of facilitating collective action among key players in the global economy. The first of such consultations took place in 2006. It sought to reduce global payments imbalances and it involved China, the euro area, Japan, Saudi Arabia, and the United States.
    - By analyzing capital market developments.The IMF is devoting more resources to the analysis of global financial markets and their linkages with the macroeconomic policy. Twice a year, it publishes the Global Financial Stability Report, which provides an up-to-date analysis of developments in global financial markets. IMF staff also work with member countries to help them identify potential risks to financial stability, also through the Financial Sector Assessment Program (described in more detail below). The IMF also offers training to country officials on how to manage their financial systems, monetary and exchange regimes, and capital markets. The IMF is currently facilitating the drafting of voluntary guidelines for Sovereign Wealth Funds and works closely with the Financial Stability Board to promote international financial stability.
    - By assessing financial sector vulnerabilities. Resilient, well-regulated financial systems are essential for macroeconomic stability in a world of ever-growing capital flows. The IMF and the World Bank jointly run the Financial Sector Assessment Program, aimed at alerting countries to vulnerabilities and risks in their financial sectors. IMF and World Bank staff also advise on how to strengthen oversight and supervision of banks and other financial institutions.
    - By working to cut poverty. At present, more than a billion people are living on less than $1 a day, and more than three-quarters of a billion people are malnourished. The IMF's role in low-income countries is changing as these countries grow and mature. But its central goal remains the same: to help promote economic stability and growth, laying the groundwork for deep and lasting poverty reduction. Its current main priority is to help low- and middle-income countries cope with the adverse effects of the global economic crisis. To that effect, it is stepping up by lending to low-income countries in order to combat the impact of the global recession.
    - By improving IMF governance. In May 2008, the IMF's membership approved a two-year package of reforms to improve representation of members at the Fund. For the IMF to be fully effective in its role, it must be perceived as representing all countries in a fair manner. With that in mind, governance reform is being accelerated to ensure a decision-making structure that reflects current global realities. The IMF is also becoming leaner and more efficient. It is trimming expenditures and reorganizing the way it earns revenue to pay for its operations.
    - By greater accountability and transparency. The IMF publishes almost all of its annual economic health checks of member countries, updates about its lending programs, and a wealth of other information on its website. The IMF's performance is assessed on a regular basis by an Independent Evaluation Office.
    Editor: Chiara OLDANI
    © 2011 ASSONEBB


    Intesa Sanpaolo is the banking group which was formed by the merger of Banca Intesa and Sanpaolo IMI. The merger brought together two major Italian banks with shared values so as to increase their opportunities for growth, enhance service for retail customers, significantly support the development of businesses and make an important contribution to the country's growth.

    Intesa Sanpaolo is among the top banking groups in the euro zone, with a market capitalisation of 34 billion euro(1).

    Intesa Sanpaolo is the leader in Italy in all business areas (retail, corporate, and wealth management). The Group offers its services to 11.9 million customers through a network of approximately 4,400 branches well distributed throughout the country with market shares no lower than 12% in most Italian regions.

    Intesa Sanpaolo has a strategic international presence, with approximately 1,100 branches and 7.5 million customers, including subsidiaries operating in commercial banking in 12 countries in Central Eastern Europe and Middle Eastern and North African areas, and an international network of specialists in support of corporate customers across 25 countries, in particular in the Middle East and North Africa and in those areas where Italian companies are most active, such as the United States, Brazil, Russia, India and China.

    Link: www.group.intesasanpaolo.com

    2019 Assonebb


    The Intra-Day Market (IM) allows Market Participants to modify the schedules resulting from the Day-Ahead Market (DAM) by submitting additional supply offers or demand bids. The IM takes place in two sessions IM1 and IM2.
    - The sitting of the IM1 takes place after the close of the DAM. It opens at 10.30 a.m. of the day before the day of delivery and closes at 12.00 a.m. of the same day. The results of the IM1 are made known within 12.30 p.m. of the day before the day of delivery.
    - The sitting of the IM2 opens at 10.30 a.m. of the day before the day of delivery and closes at 3.00 p.m. of the same day. The results of the IM2 are made known within 3:30 p.m. of the day before the day of delivery.
    - Supply offers and demand bids are selected under the same criterion as the one described for the DAM.
    - Unlike in the DAM, accepted demand bids are valued at the zonal price.
    -Gestore dei Mercati Energetici S.p.A (GME) acts as a central counterparty.
    © 2009 ASSONEBB


    It is a time series represented by this function:

    where ? is a sequence of real numbers, B is a lag operator and ? is a sequence of independent identically distributed random variables with zero mean and variance ?2. The function has to be reversible and can be expressed in the form:


    Editor: Giuliano DI TOMMASO


    The purpose of Investment Banking is to put in touch, through the financial markets, buyers (both private and institutional) who have savings and businesses in need of resources to finance their investments.
    This brief definition, which sees investment banks acting as financial intermediaries, no longer seems able to include all of the activities that have been developed over time by these operators.
    From their traditional activity of underwriting (assistance in the issuing of stocks and in finding buyers, which will be explained further on), investment banks have through time developed and diversified their business and they now also offer a vast range of other services. These include finding funds within the capital markets, financial advice regarding mergers and acquisitions, assistance in refinancing for businesses and in dealing with rights issues, and even financial services such as project financing, administrating funds, stock market trading, wealth management, brokerage etc.
    From this picture, it is clear that it is difficult to define a clear limit to the activities carried out by investment banks. They can even choose to offer only a few of these services and in different ways.
    We can try to resolve these difficulties by classifying the activities of investment banks according to the entities to which they are offered; namely businesses and private investors.
    Therefore, we can distinguish between:
    - services offered to public and private sectors (underwriting, corporate finance and merchant banking);
    - trading in stocks for themselves or on behalf of others.

    1. Underwriting

    This is the traditional business of investment banks and is part of their core-business. It consists mainly of giving advice to companies that want to offer shares and bonds to the public.
    The advice can regard the entire offering process, by setting out the terms and conditions of a future emission and even the public placing. An investment bank offers its experience in determining the technical characteristics and organisation of the public offering. The placing of stocks on a market, however, is far more difficult. A primary consideration is the prestige of the bank that is dealing with the public offering: the less well-known a bank is in the market in which it wants to issue stocks, the greater the notoriety effect of the bank dealing with the floatage. Often the big names of the financial world give the best guarantee, or at least this is how it is perceived by investors. Another important consideration is the strength of the relationship the bank already has with the market. Choosing a bank with a low level of visibility and experience instead of another one with a shady reputation can undermine the public floatation. The big players in investment banking often have a strong and consolidated relationship with market investors (both private and institutional) and potential subscribers. The investment bank does not normally have any obligations towards the nominal amount that is offered and remains unrequested, except perhaps to agree to sell at the best possible price any unwanted stocks.
    On other occasions, the investment bank agrees to buy unsold stocks at a pre-established price. In this case, the bank in question can decide to undertake the public offering together with other banks to reduce any price risk in the public offering. Alternatively, the issuer can resort to floatation through an auction system. Here, once the general conditions of the stocks are made known, the bank considers all the offers and accepts those with the best price/quantity combination.

    2. Corporate Finance

    With the general term "corporate finance", we refer to the counselling and assistance service that investment banks offer to businesses involved in mergers and acquisitions and in the restructuring of debt. Some of the emissions that investment banks deal with for companies are carried out simply to create financial resources in view of a future merger and acquisition with other companies. Here investment banks are not only responsible for finding capital but, more importantly, also for providing assistance to a company involved in a Merger & Acquisition deal by helping it to search for potential target companies by outlining the terms and conditions of the operation and by preventing possible future takeovers. As for debt refinancing, the aim of this activity is to re-stabilise the financial situation of the company. Investment banks assist businesses with operations that improve their financial position, with the goal of optimizing business or, in some cases, helping them to make a recovery. They can do this by issuing new shares, consolidating or increasing a company’s debt, or by converting its credit into other asset classes.

    3. Negotiating stocks

    Stock trading represents a major source of revenue for investment banks. As mentioned at the beginning, this service differs from others discussed up to now in that it is not entirely directed to private businesses, but to the market as a whole. The bank can either trade in stocks and shares for itself (dealing), and therefore for its own portfolio, or for third parties (brokerage). The profit from such transactions comes mainly from the difference between the bid/ask prices or from the increase in value of the stocks held in portfolio.

    © 2009 ASSONEBB


    Investment funds can generally be described as collective forms of investment funds where the participators (that is people who invest in these funds) are the owners of the share they have paid for. The total number of units represents the overall value of the fund; however, an asset is considered as a whole. In other words, the investor (also called participator or subscriber) participates in an investment fund by buying its units. Even though each investor is in possession of a different number of units, the overall capital of the fund is taken to be as a whole, and all the subscribers who have made payments as a communion. The units also give each possessor equal rights and all the units have the same value according to the market value of the entire fund. The total value of the fund depends on the financial markets and also on the ability of who is in charge of taking the decisions concerning the fund’s investments. This entity is represented by the Società di Gestione del Risparmio (SGR or savings management company-please see explanation). Investment funds can be "open" or "closed". In open funds, the unitholder can decide to invest in further units or ask for a refund at any time. Naturally, the amount the unitholder pays or receives depends on the market value of the units at the moment of subscription or redemption. In closed end funds, once the fund has been created and therefore all payments have been made, it is no longer possible for new investors to participate in the fund. As for a refund of the subscribed units, closed funds do not allow refunds of the invested capital until the fund’s closure or before a pre-established date.
    Investment funds are classified according to the percentage of shares they hold. According to "Assogestioni", there are five macro-categories of investment funds in accordance to the "standard asset allocation"1 of their investments:

    Within these macro-categories, it is possible to find a number of other distinguishing factors: there are funds that invest in single countries (Italy, France, North America), in geographic regions (Europe, US, Eastern Europe, Northern or Southern Africa, Asia); in a category of countries (industrialized or emerging nations); in currencies (the dollar or the euro); or even theme investment funds that invest in specific types of equity. As a result, we can find funds that invest in companies that belong to sectors such as renewable energy, mining, (gold, silver, palladium, etc.), or agriculture, etc.

    1please see the Assogestioni table on WWW.ASSOGESTIONI.IT.

    Editor: Mirko IORI
    © 2009 ASSONEBB


    The International Organization of Securities Commissioners.

    ©2012 Editor: Camera dei Lords


    International Public Sector Accounting Standards (IPSAS) are a set of accounting standards issued by the IPSAS Board for use by public sector entities around the world in the preparation of financial statements. IPSAS are employed in the anglo-saxon system of accounting. These standards are based on International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB).


    The Istituto Centrale delle Banche Popolari Italiane (ICBPI … Central Institute of Italian Cooperative Banks) is the group leader that operates in support of the growth and consolidation of banks, financial and insurance institutions, companies, and public administration.
    ICBPI, in particular, is a System bank specialised in payment systems and services (national and international), in security services - offered according to a business process outsourcing model, and in the services of liaison between banks and companies and the public administration. In the payment services, through a partnership with Equens SE, the Institute manages one billion transactions yearly and it is the leader in Europe with a 15% market share. In the services of Automated Clearing House (ACH), ICBPI holds 45% of the domestic market (together with Iccrea Banca, with which it constitutes a single ACH), it participates in the EACHA (European ACH Association), and it provides the SCT (Sepa Credit Transfer) service to 33 direct adherents and 428 indirect ones. For these services, ICBPI guarantees the compliance to the rules and the criteria established by the European legislation (PSD- Payment Services Directive, and SEPA- Single Payments Area). In the framework of security services, ICBPI covers the entire supply chain of investment services: collection and transmission of orders, negotiation, consultancy, placement, clearing, settlement and custody. The Institute is also the only national operator carrying out the activity of Custodian Bank and Fund Administration. In the services of liaison between banks and companies and the public administration, ICBPI supports the infrastructure of Consorzio CBI (Interbank corporate banking consortium) with more than 80 banks managed in the role of Gestore Punto di Accesso (Access Point Provider), and with more than 170,000 companies active in the services of Struttura Tecnica Delegata (Technical Subject)). Moreover, ICBPI is the leader in Italy in the services and solutions of integrated e-invoicing. With Collections and Payments, the Institute has over 300 client banks and it offers innovative services in support of the import-export of enterprises (Global Trade Services).
    ICBPI was established in 1939 on the initiative of six Banche Popolari (Cooperative Banks) … Cremona, Intra, Lecco, Lodi, Luino and Varese, Verona … as a body with the aim of strengthening and coordinating the action of cooperative banks. In time, the shareholders increased and included all Italian cooperative banks; today, its corporate structure is open to the participation of other banks and insurance companies.
    Initially, the main objective was that of ensuring to the category of cooperative banks the service of bank cheque emission through the use of the so-called “representative bank cheque” (property of the Institute, but issued in the name and on behalf of the Institute itself by the single cooperative banks). In the following years, the Institute characterised itself as a reference point for the category due to all the initiatives in support of cooperative credit and its philosophy. From an operative point of view, it also assumed the function of clearing house for the majority of interbank transactions still based on paper exchange (i.e. cheques and bills) and that entailed an accounting intermediation between the associated banks and the rest of the domestic and foreign banking system.
    In the 1980s, also through the support of the subsidiary joint-stock company Servizi Centralizzati-Seceti, the Institute assumed an active role in all events and transformation processes that led to the creation of SETIF (Servizio Elettronico Trasferimento Interbancario Fondi … Electronic Service of Interbank Fund Transfer) and SITRAD (Sistema Interbancario Trasferimento Dati … Interbank Data Transfer System), and consequently to the establishment of the modern interbank systems of payment (bank transfers, simple collections, documented operations, etc.). In this context, the Institute was an essential reference for the care of the specific interests of cooperative banks, and it performed the accounting settlement of the transactions passing through the Category Network of Cooperative Banks (whose network operator was Seceti) in a centralised way.
    Afterwards, the Institute continued to preside over the section of the systems of payment, by carrying out the function of guide and support to the Category in the preparatory and testing phases of the various innovative events that took place both nationally and internationally: the dismantling of the Category networks constituting SITRAD, and the contemporaneous launch of the Applicative Centres of RNI (Rete Nazionale Interbancaria- Interbank National Network); the progressive extension of monetary settlements to all interbank payment services; the procedure of exchange and settlement of non-local cheques in the Clearing Houses; the Electronic Cheque Clearance; BIREL; TARGET; EBA.
    Today, the Institute, together with its subsidiaries and controlled companies, although maintaing its role of service provider and cooperative credit supporter, is open to other banking and financial organisations, thus widening further its range of services provided.

    Link: (website partly in Italian and partly in English) www.icbpi.it


    The Italian Corte dei Conti is an Institution with the role of safeguarding public finance and guaranteeing the respect of the jurisdictional order. The Corte pursues these two aims through two functions: the audit function and the jurisdictional function. According to Article 100 of the Italian Constitution, the Corte is responsible for the “a priori” audit of the legality of Government acts, and also for the “a posteriori” audit of the State Budget’s management.
    It participates, in the cases and in the manners foreseen by law, in the supervision of the financial administration of those bodies to which the State contributes funds on a routine basis. It reports directly to the Chambers of the Parliament on its findings. The Corte is neither an organ of the Parliament nor of the Government. Article 100 of the Constitution places it in the particular position of organ of constitutional relevance.
    In the audit field, in order to better enact Art. 100 of the Constitution, Art. 3 par. 1 of the Law n. 20 of January 14th, 1994 establishes that the Corte dei Conti should carry out an “a priori” audit exclusively on the most significant Government acts expressly listed in the article. They are essentially general planning acts of the administration; acts audited “a priori” for the consequences they produce on the following implementation acts. The “a priori” audit of these acts is performed so as to avoid that illegal administrative procedures catch on as a results of the illegitimacy of the general act. The provisions of art. 3 par. 4 of Law n. 20 must be considered the most important part of the whole reform. They introduce a new methodology of auditing, by entrusting the Institution with the task of carrying out “a posteriori” audits on the management of the budget and the capital assets of Departments and on EC funds.
    This audit includes investigations aimed at sectors or subjects, not only by focusing on the aspects of legality, but also by taking into account effectiveness (results), efficiency (time and methods) and economy (costs). For this purpose, the legislator entrusted the Corte dei Conti with the task of setting audit programmes and criteria on a yearly basis. Paragraph 4 of the already mentioned article 3 entrusts the Corte also with the task of verifying the functioning of internal audits in each Department.
    At least once a year, the Corte reports to the Parliament and to Regional Councils on the results of the audits carried out. There is no obligation to discuss the reports in Parliament. Through the reports, the Parliament is informed so that it can adopt measures that fall under its authority.
    The Parliament shows great consideration for the Corte’s reports on account of its independence.
    In the jurisdictional field the Corte’s duties are:
    a) the judgement of responsibility, which concerns economic responsibility for damage caused to the State or other public bodies by their own civil servants;
    b) the judgements of accounts, which regards a special responsibility for accounts, connected with the management of public money or property;
    c) the judgements on pension matters, concerning civil, military and war pensions.
    The new regulation regarding the jurisdictional function of the Italian Corte dei Conti (Law n. 19/1994) provides for jurisdictional Chambers of the Corte to be set up each in each region, with the seat in the capital of the region.
    Appeals are allowed against the sentences of the regional jurisdictional Chambers to the central jurisdictional Chambers.
    Regional Prosecutor General offices have been set up as a result of the decentralisation of the jurisdictional Chambers.

    © 2011 ASSONEBB

  • Italian Mutual Guarantee Institution


    The purpose of the present work is to carry out an analysis of the current operational context of the Mutual Guarantee Institutions (MGIs) in Italy. In this regard, econometric evaluations are performed upon balance sheet items belonging to a number of MGIs, in order to understand the main requirements for them to be granted access to public subsidies for carrying out their activities. Similarly, factors determining the amount of such subsidies are investigated as well.

    As a matter of fact, the recent legal innovations related to these consortia and the new role played by the State in granting loans to companies are redefining the operational capabilities of MGIs and the support they receive by public bodies.

    Specifically, such changes have brought about a significant reduction in the public funding traditionally available to MGIs, thus undermining their ability to fulfill the insolvencies related to portions of the loans upon which they had earlier placed their guarantee.

    This work provides an econometric evaluation carried out upon the fully-operational MGIs in 2013: starting from Vacca, Mistrulli (2011)’s contribution regarding MGIs aggregations via public funding, issues for accessing such funding by MGIs and their corresponding amounts are discussed.

    Results of the estimations underline that the largest MGIs in 2013 are those that have greatly benefited from public funding. The remaining MGIs, in order to stay in business, face the critical challenge of either increasing their size so as to keep working with the State’s support or choosing self-sustainment with the returns from the guarantee provisions.


    MGIs facilitate firms to receive loans from banks, although the literature states (Osservatorio sui Confidi, 2015) the economic balance of MGIs is assured almost all the cases thanks to public subsidies, which are provided to MGIs without a national regulatory framework concerning criteria to grant resources with the same rules on the whole country.

    Starting from literature concerning the adoption proposal of these criteria (Unioncamere e Assoconfidi Luglio 2012), it has been considered whether the MGIs’ dimension and the risk mitigation activities adopted by MGIs such as counter-guarantee and second-level insurance may be critical drivers in order to deliver public subsidies to MGIs.

    Therefore, in the light of the above, the objective of the present analysis lies in the investigation of the main drivers underlying the release of public subsidies, by also including MGIs that had not been considered so far because the total amount of guarantees they had released was below a meaningful threshold as reported in Osservatorio sui Confidi (various yearly editions), or because the literature concerning Italian MGIs was restricted upon a sectorial (Fedart Fidi, various yearly editions) or territorial basis (Unioncamere, 2012). Specifically, in this study MGIs have been included without territorial or dimensional limitations, because according to Bartoli et al. (2013) the guarantee’s value possesses an “implicit” component lying in the greater knowledge of MGIs with respect to the firm, beyond the guarantee’s amount granted.

    Two equations have been estimated in order to verify the MGIs’ key drivers related to their access to public subsidies and to the amount of financial support they received. In the first equation it has been estimated via an OLS model what characteristics of MGIs influence the amount of public subsidies received. The second equation has been estimated via a probit model to verify the characteristics of MGIs which may affect their chance of receiving a public subsidy. Their corresponding empirical model will be presented later in the text, whereas in the following paragraph the dataset used for the estimations will be described.


    To perform the estimations balance sheet data of MGIs have been used, which were digitalized by Cerved Group S.p.a. and provided by a bank. The dataset includes 258 balance sheets of MGIs, having December, 31st 2013 as reference date, which were actually operational in 2013.
    The dataset has been obtained by filtering a larger number of observations. First of all, in the dataset balance sheets that occurred multiple times (due to updates) within the original database have been excluded (only the last updated version has been left in the dataset). In addition to this, MGIs which had undergone economic failure or were not operating anymore at December, 31st 2013 were excluded from the dataset. Finally, in order to represent data in a single dataset, data with different accounting standards were reconciled. Due to the finer-grained items features in the International Accounting Standards which highly differed from the coarser-grained items required by the Italian Civil Law standards, only the latter representation was used.

    Table 1: Segmentation for geographical area concerning MGIs from the dataset (year 2013)
    Data: Cerved

    Table 2: Territorial segmentation by percentage of the total amount of MGIs’ guarantees in the dataset (2013 year)
    Data: Cerved

    Table 1 and 2 highlight the segmentation by geographical area of MGIs and their percentages concerning the amount of guarantees released on December, 31st 2013. Figures presented are fundamentally coherent and reliable, and aligned with the data concerning the guarantees’ market of MGIs (Osservatorio sui Confidi, 2015) since they confirm the concentration of guarantees in northern Italy (Osservatorio sui Confidi, 2015). The territorial concentration of MGIs inserted in the dataset is higher in the north part of Italy than in the south, despite the fact that the literature concerning Italian guarantees’ market shows the opposite. This contrast happens due to the wider availability of MGIs’ data concerning northern Italy, but the dataset is suitable to the whole Italian context nevertheless, according to the decreasing trend of MGIs’ guarantees highlighted in literature (Osservatorio sui Confidi, 2013): 23,9 billion euros (2010) vs 20,3 billion euros (2013).
    As far as the territorial segmentation is concerned, in Table 3 some information concerning the public subsidies provided to MGIs is reported. Two figures are highlighted. The first shows that 5 Italian regions in the northern area and the Lazio region concentrate the 54,2% of MGIs that received a public subsidy, whereas the second shows the percentage of the guarantees’ total amount granted to the above mentioned regions: 83,4%. The region which received the greatest amount of public subsidies is Trentino Alto Adige, while on the territory of Molise and Basilicata all of the 6 MGIs legally located in those regions did not receive any public subsidies.
    By comparing the total amount of figures in Table 3 with the total amount of the MGIs‘ public contribution during 2013 (93.680.727 €, Osservatorio Confidi 2015), it is possible to highlight that the 85% of public subsidies released in Italy during 2013 is actually featured in the database and thus their distribution is deemed reliable.

    Table 3 Distribution of public subsidies by Italian regions as legal residence of MGIs (data and volumes from the 2013 dataset)
    Data: Cerved

    An additional data source used to build up the dataset was the MGI registry owned by a large Italian bank. This registry allowed to keep track of the age of the Italian MGIs as well as to discriminate whether they had performed a mutual merger in order to grow in size. Besides, the 2013 Italian GDP information at a regional level was obtained from the online database I.stat.

    The variables chosen to formulate the empirical model are now described in qualitative terms; further details can be found in Annex A.
    The dependent variable Importo Contributo Ricevuto measures the amount of public subsidies perceived by MGIs featured in the dataset during 2013.
    As seen above, these subsidies are received mainly in the North Italy. The choice to include such a variable in the empirical model is meant to estimate the percentage variation of public subsidy that the MGI could receive thanks to the variation of the independent variables.
    The idea is to investigate what characteristics of the MGIs can increase the amount of public subsidies received by the MGIs featured in the dataset during 2013, the year marking a decrease in public subsidies released to MGIs (Osservatorio sui Confidi, 2015).
    The dependent variable Contributo is a dummy variable which assumes the value “1” if the corresponding MGI received a public subsidy. This variable has been inserted in a probit model meant to highlight the MGIs’ characteristics which can increase the probability of receiving a public subsidy.
    The variable Structure is a dummy variable which discriminates MGIs by their dimension. It assumes the value “1” for MGIs whose balance sheets follow the IAS classification (The International Account Standard (IAS) is a mandatory standard for MGIs whose financial assets are above a given threshold. The latter MGIs, upon an authorization issued by the Bank Italy (Banca d’Italia, 2008b), acquire the status of so-called “evolved” MGIs.), or the value “0” for smaller MGIs whose balance sheets are produced according to the Italian Civil Law standards. According to Baldinelli (2011), Vacca Mistrulli (2011), the larger MGIs are deemed more “evolved” in terms of operation, variety of services and risk management. In particular, Baldinelli (2011) and Bank of Italy (2014) express the need to boost the mergers among MGIs to constitute more stable and reliable intermediaries. Indeed, both of the authors propose to restrict public subsidies only to those MGIs that manage to acquire the status of “evolved” MGIs: as such, the latter would be able to face the triggering of more guarantees, in connection to the financial crisis quoted in Bartoli et al. (2013).
    Therefore, the variable Structure is inserted in the model to verify if the MGIs’ dimension has been for them a critical variable in order to determine the amount and the access to public subsidies in 2013.
    The variable Stock garanzie is continuous and expresses the amount of guarantees released to MGIs and still active. It is a measure concerning the size of a MGI, the volume of its financial activities and the potential risks resulting from expected losses (Moderari, 2013). According to Osservatorio Confidi (2015), Unioncamere & Assoconfidi (2012) and Camera di commercio di Napoli (2014), it may affect the release of public subsidies to MGIs. Therefore, Stock garanzie is inserted in the empirical model to separate the influence of the guarantees’ amount released by MGIs at 31/12/2013 from the role played by Structure, which tracks the information concerning the status of evolved MGIs.
    The variable Risultato expresses the 2013 profit or loss concerning the MGIs in the dataset. It is inserted in the model according to Baldinelli (2011), highlighting the need for MGIs to operate with cheapness and a self-sustaining management thanks to their own profit. This variable is inserted in the model to verify whether profit was an element taken into account by public entities in order to release public subsidies to MGIs.
    The variable Anni expresses how old MGIs are at the closing date of their balance sheets (December, 31st 2013), rounded down to zero decimals. It is inserted in the model to assess whether MGIs have experienced improvements in their operation thanks to the learning by doing described by Thompson (2010), which could improve the capacity of MGIs to present requests for public subsidies before their corresponding deadlines or to correctly submit their requests to receive a public counter-guarantee.
    The variable Fusione is a dummy variable which expresses whether a MGI in the dataset has carried out at least one merger during its existence or not. According to Baldinelli (2011) and Banca d’Italia (2014), this variable is inserted in the dataset to evaluate if the dimensional growth of MGIs is significant to grant a public subsidy to them.
    The variable Controgaranzia expresses whether a MGI in the dataset has activated a counter-guarantee to restrain the risk of expected losses related to the guarantees released. This variable is inserted in the model to check if the use of a counter-guarantee is taken into account by public institutions for granting the public subsidies or for determining a variation in the amount of the subsidies themselves.
    Concerning the twenty regional dummies, they assume value “1” if a MGI has the legal residence in that region; they consider local specificities as, for example, regional GDP, competition among MGIs, regional employment rate, infrastructures.
    The variables Tasso conc. confidi reg. and Pil pro-cap. reg. have been inserted in the model as further alternative controls for regional dummies. The first measures the degree of regional competition among MGIs in the dataset, while the second measures the GDP produced per person in 2013 in the region where the MGI has its legal residence.

    Table 4: Summary statistics

    The variables inserted in the empirical model are represented in summary statistics. Table 4 shows that the mean of guarantees released is higher than the median, highlighting that the volume of guarantees is concentrated on MGIs with the larger sizes. The variable Structure assumes value “1” for 24% of MGIs in the dataset, thus resulting that less than one quarter of MGIs are controlled directly by Bank of Italy as occurs for more evolved MGIs. By considering Risultato, it appears that these intermediaries operate on average at a loss, whereas the variable Anni underlines that the MGIs in the dataset are on average younger than those operating within the Italian context, where MGIs started their activity at the end of Fifties (Cacciamani, 2011); the mean is slightly lower than the median, highlighting a soft asymmetric distribution. Looking at Controgaranzia, it results that 55% of MGIs in the dataset protected themselves against the risks derived from issuing guarantees by underwriting counter-guarantees. The mean of Fusione shows that 36% of MGIs in the dataset carried out at least one merger during their existence. As for the two dependent variables, Contributo and Importo Contributo Ricevuto, 46% of MGIs in the dataset received a public subsidy during 2013 and the distribution of public subsidies provided to 118 MGIs is asymmetric. According to regional dummies, the regions with the larger number of MGIs are Lombardia, Sicilia and Veneto. Table B (Annex B) summarizes also by units the dichotomous variables highlighting the MGIs’ size, public subsidies and risk management actions.

    The empirical model

    The model that has been designed is meant to investigate the drivers behind public subsidies provided to MGIs, both in terms of their influence on the variation of the amount of public contributions granted and in terms of the probability of MGIs to receive public subsidies.

    The territorial distribution and the size class of MGIs in the dataset was earlier shown. Now, the purpose of this study is to verify, thanks to the variables described above, if and how these drivers can influence the distribution of public subsidies to MGIs. Indeed, the literature concerning MGIs (i.e. Osservatorio Confidi, Rapporto FedArt Fidi, various years) describes the conceptual frame of MGIs by introducing the topic of their size, their presence on the market, their use of advanced methodologies to protect themselves from risks, the economic result and the region where the MGIs have their legal residence. In order to quantify the effect of these variables on the amount of public subsidies released, the following equation has been estimated:

    1. Importo Contributo Ricevutoi = ?0 + ?1Structurei + ?2Stock garanziei + ?3Fusionei + ?4Annii + ?5Controgaranziai + ?6Risultatoi + ?r + uir

    where the dependent variable is the logarithm of the amount of public subsidy that every MGIs received during 2013, Structure is a dummy variable which assumes value “1” if the MGI has an evolved dimension, Stock garanzie is a continuous variable which expresses the amount of MGI’s guarantees released and still operating at the end of 2013, Fusione is a dummy variable which assumes value “1” if the MGI performed at least one merger during its existence, Anni is the age of MGIs and Controgaranzia is a dummy variable which assumes value “1” if the MGI performed risk management activities to secure its own risks concerning the guarantees released.
    Finally, the variable Risultato is inserted to represent profit or loss concerning MGIs, ?r
    represents the twenty regional dichotomous variables and uir the error term. The regression is replicated by replacing the regional dummies with the variables Pil pro-cap. reg and Tasso conc. confidi reg. as further controls. The regression has been carried out on 118 MGIs in the dataset which received a public subsidy during 2013.

    As an additional topic of this study, the proposal of Banca d’Italia (2014) and Baldinelli (2011) to match the supply of MGIs’ public subsidies to their growth in size has been further investigated. This admissibility criteria can be inserted in the public calls published by local institutions. The following equation has been estimated in order to verify the influence of variables to determine the probability for MGI to receive public subsidies:

    2. P(Contributo = 1 | Zir) = ? (C ' Zir) ?

    ? (?0 + ?1Structurei + ?2Fusionei + ?3Annii + ?4Controgaranziai + ?5Risultatoi + ?r)

    where Contributo is a dummy variable which assumes value “1” if the MGI receive a public subsidy. The results obtained with the regional dichotomous variables are compared with other estimations featuring the variables Pil pro-cap. reg and Tasso conc. confidi reg., to verify the robustness of the model. As a further control for robustness, a Linear Probability Model with the same variables has been estimated; as known from the theory, the linear probability model (LPM) is easier to use and to understand, but is not able to catch the nonlinear nature of the true regression function of population. The probit regression considers the non-linearity of probability, but the regression’s coefficients are more difficult to be interpreted.
    Finally, some multicollinearity tests have been executed.


    The results of the equations previously described are presented in the following tables of this paragraph.
    The first equation shows which variations of the independent variables express a variation concerning the amount of the public subsidies provided to MGIs.
    Table 5 describes how Structure and the other variables influence the dependent variable Importo Contributo Ricevuto; this variable is filled only for the MGIs in the dataset that have received public contributions during 2013 (the estimation is on 118 observations) and it represents the amount of public resources supplied to the MGIs in the dataset by public institutions.

    Table 5: Effect of the MGIs’ size on the determination of the amount of public subsidies
    as applied on the dependent variable “Importo Contributo Ricevuto”.
    OLS estimation

    The results of Table 5 confirm how Structure is directly correlated with the dependent variable in the columns (1, 2, 4, 5, 6); in particular, in the column (6), where both R2 and the regional controls are present with the highest values (with respect of the other columns) and the more thorough formulation of variables, it can be noticed that when the MGI’s size increases from lesser to greater then the amount of public subsidy grows up to 71%. This shows that higher amounts of public subsidies are provided to MGIs if they turn into evolved MGIs.
    Aside from that, the variable Stock Garanzie is also significant and directly correlated with Importo Contributo Ricevuto in the columns (1-6). On the other hand, the other variables estimated do not seem significant.
    The Variance Inflation Factor test does not express in any columns the presence of multicollinearity among variables. The results obtained using the variables Pil Pro-capite and Tasso conc. Regionale as controls are similar to the results obtained using regional dummies.

    It is possible to deduce from the results of the estimations that public institutions supplied higher amounts of subsidies to MGIs having higher volumes of guarantees, or to MGIs that assumed the status of evolved MGIs. This evidence is confirmed in the asymmetric distribution of summary statistics concerning the variable Importo Contributo Ricevuto. This policy adopted by public entities reveals the adoption of the guideline suggested by Banca d’Italia (2014) which was meant to restrict public subsidies only to evolved MGIs. As a matter of fact, also Baldinelli (2011) expresses the need for these Italian intermediaries to grow up by mergers or by increasing their equity, in order to grant a more efficient guarantee supply chain. To reach this goal, Baldinelli (2011) means to elicit such a growth via the restriction of public subsidies only to larger MGIs.
    On the basis of the estimated results and the elements mentioned above, it is possible to assert that the public subsidies provided to Italian MGIs were used by public entities in order to elicit MGIs to grow in size, so that they might increase their capital and the controls on their business thanks to the Bank of Italy’s supervision dedicated only to evolved MGIs.

    In Table 6, the results of the estimations of the second equation are introduced. The purpose is to check if in the year 2013 the access to public subsidies by MGIs was influenced thanks to the variable Structure or other variables.

    Table 6:The influence of Structure on the variable Contributo. Probit estimation

    The variable Structure results significant and directly correlated in the complete formulation of the model, both with regional and other controls, performed in columns (IV … VI).The variable Fusione shows meaningful results in columns (I, II, III, VI) directly correlated to Contributo; compared with Structure results, they are significant also for incomplete formulations of the proposed model.
    The values of Controgaranzia are significant in columns (I, II, III, IV); the coefficients are directly correlated with similar values, while the variable Risultato shows values significant in columns (III, IV, V, VI).
    In columns (I … IV) 252 observations have been used, because regional controls exclude the six MGIs with legal residence in the two regions where public subsidies were not delivered during 2013.
    Column (IV) presents standard errors calculated by regional clusters, while column (III) robust standard errors.
    The VIF test does not show multicollinearity among variables, and columns (I … VI) satisfy the goodness of fit test.
    Before introducing the quantification of marginal effects on the estimations exposed above, the same variables have been estimated also with a Linear Probability Model (LPM) to perform another robustness test.
    Indeed, despite the limits of this model expressed above, the LPM is useful to verify the results obtained with the probit estimation.

    Table 7:The influence of Structure on the variable Contributo.OLS estimation

    The LPM’s results are coherent with the results of probit model. Indeed, the significance of the variable Structure is confirmed in columns (3, 4, 5, 6) with coefficients of the same sign in presence of different controls.
    The variable Fusione presents meaningful results as well, with positive sign in columns (1, 2, 3, 6) as estimated previously in the probit model. Both Controgaranzia and Risultato in the OLS model further confirm the robustness of the probit model; in particular Controgaranzia has coefficients that are significant and positive in the OLS model for columns (1, 2, 3, 4), while Risultato has coefficients significant, positive and similar for columns (3, 4, 5, 6).
    Also, the goodness of fit test shows similar values according to the probit model.
    The only difference between the two models is the number of observations, because in the OLS model the estimations include all the 258 observations. In fact, the 6 MGIs with legal residence in regions where public subsidies to MGIs were not delivered, which were excluded in the probit model, are instead considered in OLS model.
    After the comparison between probit model and LPM, the next step of this investigation is to estimate the calculation of the marginal effects in order to quantify the influence of independent variables on the dependent variable Contributo.
    In order to perform this estimation the following formulation of the probit model has been considered, with robust standard errors and the highest value of pseudo-R2 among all the configurations of the variables of the model.

    Table 8: Estimation used for the calculation of the difference quotient

    Table 9: Results of the difference quotient of dependent variables related to independent variables

    The results in Table 9 demonstrate how the difference quotient of variable Contributo is 22% for the independent variable Structure (significant at 5 %), 13% for Fusione (significant at 10%), 13% for Controgaranzia (significant at 10 %) and 0% for Risultato (significant at 5 %). Consequently, the variable critically influencing the delivery of public subsidy is the acquisition of the status of evolved MGI.
    Similarly, Fusione and Controgaranzia contribute to increase the probability for a MGI to receive a subsidy, although with a lower marginal effect.
    The variable Risultato instead results irrelevant to determine the access to public subsidies.
    Such results imply that MGIs are stimulated to acquire the status of evolved MGIs.
    In fact, in order to receive the required subsidies to operate MGIs shall either increase their share capital over the dimensional threshold, or their dimension thanks to mergers among them. In addition to this, the marginal effect of Controgaranzia has the following implication: MGIs insuring their risks are worthier of attention from the public entities delivering the subsidies. Thanks to the risk mitigation, the bank partner of a MGI insured is bound to shelve less capital; consequently, the bank has more financial resources to support its own activities.
    Furthermore, the above mentioned marginal effects confirm that public institutions adopted both guidelines proposed by Unioncamere & Assoconfidi (2012) and Baldinelli (2011); the first concerning criteria to grant public subsidies to MGIs, and the second proposing the incentive of mergers among MGIs because of the assignment of public subsidies to evolved MGIs.
    The low marginal effect of Risultato, instead, was an expected result, because MGIs are not-for-profit entities. The implication of this result highlights that it seems not necessary for them to be for-profit entities in order to receive public subsidies from the State.


    This study focused on the public contribution to MGIs, in order to measure the drivers influencing the delivery and the amount of public subsidies in favor of these intermediaries. Starting from the study of Vacca, Mistrulli (2011) on the topic of public subsidies as instruments to stimulate aggregations among MGIs, a dataset with data concerning a group of MGIs of 2013 was built, by reconciling the different accounting standards (IAS and Italian Civil Law). After this initial phase, econometric estimations were performed on such data in order to identify the drivers related to amount and access of subsidies for MGIs.
    Thanks to these estimations it has been demonstrated as a first result that MGIs with an “evolved” status received subsidies with a higher amount than the same intermediaries that did not possess such a status. Consequently, this policy for delivering subsidies has been found coherent with the adoption of the guidelines proposed in Baldinelli (2011) and Banca d’Italia (2014).

    The implications of this first result reveals a policy oriented to supply a greater amount of public subsidies to MGIs with a larger volume of financial activities, at the expense of MGIs less evolved that receive subsidies of lower amount. The lower support to MGIs not evolved underlines as a further implication the incentive to acquire the status of evolved MGI in order to receive more public subsidies; otherwise, these MGIs would be forced to either self-sustain themselves with profits from the delivery of guarantees or leave the market altogether.

    The second results concerns the drivers for MGIs in order to access public subsidies. As a result, the main driver among the variables of the probit model was the status of evolved MGI. This was true despite the fact that both the mergers among MGIs and the risk management activities (such as counter-guarantees) have been considered worthy of attention by public entities for assigning subsidies, while the economic result of MGIs did not influence the probability to access such contributions.

    Therefore, also this second result concerning the status of evolved MGI confirms that the adoption of the aforementioned policy has the following implications (as proposed by Baldinelli, 2011):
    1) the creation of larger-capital MGIs is elicited by local institutions;
    2) MGIs performing risk management activities are encouraged;
    3) larger MGIs may operate beyond their territorial boundaries and thus favor a wider diversification of risks.

    Besides, other consequences are reached thanks to the results obtained from the estimation of the marginal effect, which are coherent with the guidelines of Unioncamere & Assoconfidi (2012). In fact, it has been verified that MGIs performing mergers during their existence may later take advantage of a more favorable policy in order to access public subsidies. Comparing this result with the first one of probit regression, this revelation implies a further incentive for mergers among MGIs, in particular for MGIs which neither have the status of evolved MGI nor have performed any mergers. Indeed, the purpose of public entities inferred by these results highlights the policy to let guarantees be issued by a smaller set of MGIs, as seen in the German model showed in De Vincentiis et al. (2007) and quoting Schmidt, Van Elkan (2006), Inmit (2010).
    In addition to the purpose to favor a territorial diversification as quoted in Baldinelli (2011), it also transpires the will to design financial intermediaries more capitalized on the territory.
    Finally, the irrelevance of the MGIs’ economic results on the delivery of public subsidies can be explained with the purpose of the cooperatives: the mutual support among their associates. It is reasonable to suppose that public entities do not evaluate the economic result of MGIs in order to deliver their subsidies; as a consequence, MGIs do not pursue profit. Furthermore, this statement is connected with the perspectives discussed above concerning MGIs of smaller sizes: if they cannot access subsidies by acquiring the status of evolved MGIs, they may be forced to operate by pursuing profits, resulting in an inconsistent behavior for such cooperatives. Therefore, MGIs with smaller sizes that are neither able to evolve nor to operate with profit will have to find other solutions to contain the risk or forced to leave the market.

    Annex A: Variables, definitions and sources

    Annex B: Summary of dummy variables, Contributo, Structure, Fusione, Controgaranzia


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