E-encyclopedia of banking, stock exchange and finance

Selected letter: H


    The Harmonized Index of Consumer Prices (HICP) was introduced by the Council Regulation (EC) n. 2494/95 of 23 October 1995. It was compiled for the first time by Eurostat in March 1997, for the 12 European Union countries that participated to the third stage of the EMU, as to provide comparable measures to assess the achievement of price convergence. The HICPs are essentially a set of European Union consumer price indices (CPIs) calculated across countries with a harmonized approach to register only "pure" inflation and, consequently, they are not comparable with domestic CPIs serving different purposes. Some differences between domestic and harmonized statistics on consumer price indices can be the methods used to estimate prices for goods, for instance in reference to sale periods , the items covered and the goods' classification. The HICP basket of goods differs from country to country as to mirror the specific national household final monetary consumption expenditure (HFMCE). The basket makes reference to the Classification Of Individual Consumption by Purpose (COICOP/HICP), and in general the main headings covered by the HICP are the following: Food, Alcohol and tobacco, Clothing, Housing, Household equipment, Health, Transport, Communication, Recreation and culture, Education, Hotels and restaurants, Miscellaneous. On the contrary, some items excluded from the computation are: narcotics, imputed rents for housing, including rents of owner-occupiers, games of chance (gambling), financial intermediation services indirectly measured (FISIM). The weights used are derived from National Accounts and Household Budget surveys (or more specific and technical sources) as to reflect the relative household final monetary consumer expenditure (HFMCE) expressed in euro (or in PPP for EU countries not participating in the EMU). The chain index starting from the base-year (2005=100 since January 2006) allows to review the weights every year and to update prices to December t-1. HICP’s time series can be found on the Eurostat’s website: http://epp.eurostat.ec.europa.eu/portal/page/portal/hicp/data/database.

    Link: http://epp.eurostat.ec.europa.eu/portal/page/portal/hicp/introduction

    Editor: Bianca GIANNINI
    © 2010 ASSONEBB






    Banks realise their business through a series of different products that are placed and sold on the market producing a system of prices and the tightening of business relationships with plenty of diverse and varied customers. In reviewing different bank models, it is possible to distinguish between specialized banks, universal banks and financial conglomerates.
    The development of one type rather than another is to be found in the operating efficiency specific to each bank and in the regulatory constraints applied by different countries.
    Specialized banks have developed mainly in the United States of America, where the regulator sets restrictions on the expansion of business areas and on the acquisition of shareholdings in non-financial companies1. In this model, monetary resources come largely from short-term debt against small term depositors and require the presence of other types of financial intermediaries, in turn engaged in other business areas. This bank is specialized in improving the quality of their product range by exploiting different instruments from within their budget and off-balance; in addition, since the range of business areas is really limited, the consequences of this situation result in strengthening their image and in improving competition. This model has strengths in achieving economies of scale that result from a reduction in unit costs as production volumes expand, in refining intervention techniques related to rebalance of deadline schedules and in the management of risks associated with interest rates; on the weaknesses side, items can be found with respect to the narrow scope of information in general and the rational use of human resources in times of demand contraction.
    The universal banking model has found its space especially in the European context, where the regulation allows the use of a wider range of products within the same bank, with the exception of social security, housing and, until the recent legislation on the financial conglomerates2, the insurance sector. The wide and diversified range of tools makes it difficult to complete the development of business areas. There are elements of flexibility in the use of human resources, that allow monitoring trends and adequately impacting on substitutes in demand for products. Shares in other companies, including insurance companies, fuel the risk of contamination3. Conversely, the extension of tools and the range of funding nurture and facilitate the collection of information that is useful in evaluating claims and consequential choices. Given the wide range of instruments, the flow of incoming data is high and this means that the cost of production of the information benefits from economies of scale. The ability to pursue economies of diversification of production and economies of scope is positive, while dimensional problems and the high cost of administrative and bureaucratic structures are relevant in a negative sense.
    As it can be easily imagined, this kind of bank is better than the specialized banks in pursuing integration with insurance intermediaries, thus making agreements or reaching levels of more mature integration. Financial conglomerates can be realized through investments in the equity of financial intermediaries, financial institutions and financial companies exercised by a financial holding company or a financial intermediary.
    The processes of aggregation largely draw inspiration from the search for economies over joint production lines, those that involve the use of a single production factor to produce more goods or services and that are therefore linked to technology already available and to the organization of production inputs. This requirement is an essential underpinning for the development of bank-insurance conglomerates. The purpose of aggregation is the improvement of performance indicators of financial undertakings in an attempt to reach the optimum size through the joint exploitation of production factors by avoiding duplication of new skills, especially among the same types of financial intermediaries. It is important to note that, in the processes that see the integration of two different brokers, the most important economic/financial aspects include those of governance. This approach, identified by the term "allfinance", pursues economies due to the advantage of producing or selling a plurality of financial services, seeking synergies of cost and/or income from the units operating in various businesses and belonging to different industries.
    With regard to the Italian case with the definition of the European market through the 89/646 Directive, implemented in Italy with the d. lgs. No 481 of 14 December 1992, there was an opportunity to adjust part of the banking legislature. Specifically the implementation of Decree 481/92 introduced in Italy the so-called universal banking model. In particular, this model allows banks to overcome all the constraints of time and management4 (which characterized the model of specialized bank that existed until then), thus allowing credit intermediaries to play through a single organization other activities allowed by the benefit of mutual recognition. The universal bank established to deal with the European competition became similar to the multifunctional groups introduced by the so-called Amato law (218/1990). The new model of universal bank allows a higher degree of freedom to the economic entity of the financial intermediary, and a wider discretion in the choice of the organization by which to operate. In addition to the need to provide the Italian banking system with an instrument to enable a comparison on an equal basis with other European institutions, the transposition of Directive 481/92 gave answers to a number of other requirements of the Italian banking sector, such as the need for restructuring and recapitalization of banks and lending institutions and the public launching through an informal privatization process. Today, the banks authorized by the Bank of Italy are all quite similar to universal banks and they can operate with no limitation on operations and services, and with respect to maturities in the collection and use of funds.
    1 Prior to the FSMA (Financial Services Modernization Act) of 1999, there were significant restrictions on the merging of banks and insurance companies. Despite the FSMA allowing cross-holdings between the two financial intermediaries, only Citigroup today is an example of a holding company active in the two branches of financial intermediation in the U.S..
    2 Directive 2002/87/CE.
    3 The risk of contamination materializes through an indirect channel (reputation) and a direct channel (capital transfers).
    4 The adoption of the second banking directive made the principles that had hitherto characterized the banking system vanish: the principle of "time specialization of credit" based on which banks should manage the short-term credit (18 months), while credit institutions should handle medium/long credit; the principle of "institutional pluralism" whereby banks and even a small number of special credit institutions were divided into public and private, with different legal forms; the principle of "separation between bank and industry" whereby to prevent the banking system to be involved in the crises of industrial enterprises: the previous law forbade the relationship of equity participation of banks in business companies and vice versa.

    CAPRIGLIONE F. (2005). "L'ordinamento finanziario italiano". Padova. CEDAM
    DESIDERIO L. and MOLLE G. (2005) "Manuale di diritto bancario e dell'intermediazione finanziaria", Giuffrè Editore.
    GUIDA R. (2004) "La Bancassicurazione: modelli e tendenze del rapporto tra banche e assicurazioni", Cedam Editore.
    LOCATELLI R., MORPURGO C. and ZANETTE A. (2002) "L'integrazione tra banche e compagnie di assicurazione e il modello dei conglomerati finanziari in Europa", Einaudi Editore.
    PATRONI GRIFFI and RICOLFI (1997) "La distribuzione bancaria di prodotti assicurativi in banche ed assicurazioni fra cooperazione e concorrenza", Giuffrè Editore.
    QUAGLIARIELLO M. (2001) "I rapporti tra banche e assicurazioni in Italia e in Europa: aspetti empirici e problemi di regolamentazione", Luiss University Press.
    QUAGLIARIELLO M. (2003) "La bancassicurazione: profili operativi e scelte regolamentari", Luiss University Press.
    RUOZI R. (2004) "Economia e gestione della banca", Egea Editrice.

    Editor: Alberto Maria SORRENTINO
    © 2009 ASSONEBB


    A form of coverage that protects the insured against the risk of medical treatment. The insurance company provides the payment of part or of the entire cost of medical services. In the past decades, insurance companies have become more specialized and offer a variety of coverage options for specific needs of the insured. The typical form of health insurance is the indemnity insurance that gives the insured the possibility to choose the provider and the type of medical service without any constraint, and the insurance company offers a reimbursement for that service. Typically, below a fixed annual minimum amount, the insured bears the entire cost of the medical treatment or a copayment of the charge for the service between the two parties can be agreed. However, the lack of constraints on the choice of either the services or the providers rendered this type of insurance too expensive. In response to the need of containing costs for providing health benefits, alternative forms of insurance have been developed, known as "managed care". The term "managed care" encompasses all those techniques used by organizations as health maintenance organizations (HMOs), preferred provider organizations (PPOs) and point of service organizations (POSs).


    FABOZZI F., MODIGLIANI F. and JONES F. (2010), Foundation of Financial Markets and Institutions, Pearson International Edition.

    Editor: Bianca GIANNINI
    © 2010 ASSONEBB


    It is a planned offsetting replicating portfolio with “opposite” properties (i.e. cash flows) of a target risk/asset/portfolio.


    The process of avoiding or mitigating risk through the use of financial instruments such as derivatives.

    ©2012 Editor: Camera dei Lords


    A form of short-term trading that focuses on high-speed access to trading venues so as to benefit from small price differences and the division of large orders into smaller units. HFT traders often engage in algorithmic trading.

    ©2012 Editor: HOUSE OF LORDS


    It's a time series estimation method developed as an evolution of Exponential Smoothing (ES) and based on two different smoothing constants, and then on two fundamental equations:

    The first function determines an estimate of the level Lt-1 as a weighted average of the observed series last instant of time available and the expected value at time t-2.

    The second function determines the trend Tt-1 as a weighted average of two estimates: the last date update for the trend and that obtained by the difference of the last two estimated levels.

    The smoothing constants α and β can be determined by minimizing the error measure of prediction.


    Editor: Giuliano DI TOMMASO



    Canada’s economic growth has been relatively concrete and better than in most other OECD countries since the start of the recession in 2007. Overall, no Canadian bank was acquired, nationalized, required a government recapitalization or declared bankrupt and there were no government bailouts of insolvent companies during this period. Canada was the only G-7 country able to escape a financial crisis, and its downturn was more moderate than Europe countries and U.S.. Canadian financial institutions are inclined to be more rigorous monitored, with larger capital requirements, greater restrictions and fewer off balance sheet activities. Also, the recent stress tests conducted by International Monetary Fund (IMF) show the resilience of Canada's economy and its major banks for contagion risks. A number of factors played a role in this positive outcome. According to recent economic review, Canada has an economy characterized by some strengths: responsible fiscal policy, strong and resilient financial system, sound monetary policy and institutions that produce reforms to encourage growth.

    Canada’s Financial System: Well Managed and Well Regulated

    (see also the Canada’s financial system among federal regulation and economic crisis. Strengths and vulnerabilities)

    During the global economic crisis of 2007-09, the financial systems of some countries responded better than others. The crisis crippled or brought down financial institutions and forced bailouts of banks as well as countries. In contrast, Canada’s financial system has been relatively less affected by the global crisis than those of other industrialized countries. In fact, the performance of the Canadian banking system during this period was relatively strong. For the last six years, the World Economic Forum has ranked Canada first among more than 140 countries for banking stability because it has almost totally avoided systemic troubles. At the same time, in 2014, according to the Global Financial Magazine ranking, the first four positions in the ranking of the strongest banks, there are four Canadians banks.

    Moreover, the regulatory framework for Canada’s financial sector is more prudent compared to U.S., for example, Canadian banks were less active in the subprime lending and securitization activities that are at the trigger of the existing financial crisis.

    Actually, the Canadian banking system is characterized by five key elements:

    - Supervision is focused and proactive

    - Efforts to promote financial stability are coordinated

    - Clear and credible recovery and resolution mechanisms

    - Bank capital regulation is prudent

    - Entire financial framework is regularly reviewed and updated

    In particular, in Canada there is financial stability strengthened for adequate informal cooperation between federal and provincial authorities, about level of supervision and regulation. Supervisory responsibility for the financial sector in Canada is divided among the federal government, among the provincial governments, and among a group of agencies within the federal government. The Canada's approach is the shared responsibility among the Department of Finance and other federal financial regulatory authorities, including the Bank of Canada, the Office of the Superintendent of Financial Institutions (OSFI) and the Canada Deposit Insurance Corporation (CDIC). Ultimately, it is the Minister of Finance who is responsible for the sound stewardship of the financial system. Moreover, heavy regulation and tight restrictions on entry led to a highly concentrated banking system dominated by only five competitors (Royal Bank of Canada, TD Canada Trust, Bank of Nova Scotia, Bank of Montreal, and Canadian Imperial Bank). While this system made the sector less competitive, it also made the sector easier to regulate. Monitoring has been made more feasible by the fact that its system includes only a small number of institutions. The results are that Canada’s compliance with international standards for regulation and supervision of banks and insurers is strong.

    Another important factor is that, overall, risk-management practices at the major Canadian banks remained prudent during the lead-up to the global financial crisis, and likely helped them to weather the subsequent effects better than many other banks. In Canada, strong risk-management practices are recognized to a traditionally conservative business culture. In fact, the IMF results indicate that Canada’s banks had a less-aggressive business model, a more-robust funding model, and stronger balance-sheet liquidity. The IMF’s 2014 Financial Sector Assessment Programme (FSAP) review explained that Canada’s major financial institutions were sufficiently well capitalized to withstand the credit, liquidity and contagion issues of a quick shock.

    The reason for the construction of strong regulatory framework was financial system stress that has occurred in the past, including the failure of some small Canadian banks and upheaval in the domestic housing and commercial real estate markets in the 1980s and again in the early 1990s. These cases show that the Canadian financial system is not immune to issues, and they contributed to an improved framework governing behaviour in Canada’s financial system, including adoption of better risk-management practices for banks. These events encouraged the reaction of Canadian authorities in order to create a situation of prudent risk-taking and improved crisis response. Put differently, Canadian banks strong performance during the 2007…09 financial crisis is seen as having benefited from the lessons from past periods of financial system stress in Canada, and the subsequent changes put in place, in terms of regulation, supervision and banks’ own risk-management practices, following these events.

    Another positive effect was the clear and credible recovery and resolution mechanisms through the establishment of clear mandates, incentives and communication structures for all of the domestic government institutions that operate to financial stability. For example, Canada’s bank regulations and charters are revised every five years, an attempt to help regulation adapt to innovation and new risks.

    Canada’s Actions for Real Economy

    Canada was generally better situated than many other countries to weather the financial crisis and the global economic recession, in particular among G-7 countries as showed in Table 1.


    Table 1: Canada was the first G-7 country to recover losses


    Source: Statistics Canada, U.S. Bureau of Economic Analysis, U.K. Office for National Statistics, Eurostat, Cabinet Office of Japan, and Bank of Canada calculations


    This resilience is attributed to several factors. First, Canada positioned itself well also before the global recession thanks a conservative macroeconomic policy that reduced the federal government’s debt relative to GDP. Secondly, the banks performed better because Canadian authorities operated in advance in addressing the potential economic shock. In this scenario, it is evident the importance played by institutions and policy makers which have played a key role through the adoption of specific reforms in the real economy sectors.

    Overall, Canada’s economic reforms since the 1980s included free trade, privatization, spending cuts, sound money, large corporate tax cuts, fiscal reforms, balanced federal budgets and decentralizing power to decrease the central government influence (the provinces compete with each other over fiscal and economic matters, and they have wide latitude to pursue different policies).

    In recent years, the Canadian government launched a series of measures which, through greater simplification and transparency, have stimulated the growth of investment. For example, some actions focused on reducing barriers to foreign investment in the telecommunications field and on opportunity for entrepreneurs to take benefit of a very short time for the authorization of large economic projects. In particular, the government has invested heavily in sectors relevant to the Canadian economy such as agriculture and mining activities but also to reduce the tax rates for companies to stimulate growth.

    Since October 1, 2012, the “Red Tape Reduction Action Plan” sets out what the Government is doing to cut burocracy so entrepreneurs can focus on business. The Action Plan addresses to businesses to limit regulatory creep and make the organization more transparent and accountable. These structural reforms regarding three main sectors action: reducing the administrative burden on business, making it easier to do business with regulators and improving service.

    According to the macroeconomic data showed at the World Economic Forum in late January, the Canadian real economy is characterized by some strengths: lower business costs that facilitate the opening of new businesses, a tax system that encourages investment for new companies, sure access to the North American market, fiscal federalism that helps to share risks and labour market flexibility.

    In addition, in the last years the main goal for the Canadian government was to consolidate the success of Canadian companies through international trade. In trade policy remains a priority of the Government's commitment to a more competitive economy of the country thanks to a prudent fiscal policy, the promotion of innovation programs and the strengthening of trade agreements. Among the measures for the economic growth one of the most important has been the almost complete elimination of duties and tariffs on imports. This has continued to stimulate trade agreements with more countries (recently with Panama, Peru, Colombia, Thailand, Morocco and free trade agreement, nearly completed, between Canada and the European Union). In 2013 more than 90 foreign multinationals have decided to land in Canada. This trade policy has diversified its export markets after the contraction of foreign demand as a result of the 2008 crisis. These recent measures with other approved previously are in order to protect the economy from the risks of recession. But prolonged slow growth in emerging markets or in the euro area could also adversely affect Canada. This could depress demand for Canadian exports, potentially causing more damage to the country’s fragile manufacturing sector and Canada’s overall gross domestic product.



    ASSOCAMERESTERO (2014) Canada: dati macroeconomici 2013, Business Atlas

    BANK OF CANADA (2014) Monetary Policy Report, BOC report, July (http://www.bankofcanada.ca/wp-content/uploads/2014/07/mpr-2014-07-16.pdf)

    BANK OF CANADA (2013) Canada Works, BOC report, may (http://www.bankofcanada.ca/wp-content/uploads/2013/05/remarks-210513.pdf)

    CIA - World Fact Book https://www.cia.gov/the-world-factbook/

    HALTON R. (2013) Why was Canada exempt from the financial crisis?, Econ focus

    NEVILLE A. and GRAYDON P. (2014) Lessons from the Financial Crisis: Bank Performance and Regulatory Reform, Discussion Paper (http://www.bankofcanada.ca/wp-content/uploads/2013/12/dp2013-04.pdf)

    OECD (2014) Canada overview, OECD Economic Surveys, June (http://www.oecd.org/eco/surveys/Overview%20_CANADA_2014.pdf)

    OECD - Historical Country Risk Classification www.oecd.org


    Editor: Giovanni AVERSA



    The concept of human development shifts the attention from the idea of economic growth to a wider concept of development, which takes into consideration all those processes that expand people’s choices and improve their well-being (see also hdr.undp). Human development is therefore understood as an end rather than a means of development (UNDP 1990).
    This approach differs from other theories of economic growth since the emphasis is here placed on inequalities rather than poverty in absolute terms (Sen 2000). Supporters of theories on human development have demonstrated that GDP growth does not necessarily widen the possibility of choice for all human beings (Sen 1992, 2000). To show the link between GDP and some dimensions of human flourishing, a recent work edited by the Human Development and Capability Association has compared the cases of Uruguay and Saudi Arabia. Although Uruguay has a much lower GDP than Saudi Arabia (source: UNDP 2007), people in this country live longer, the female literacy rate is higher, and children’s life conditions are better than in the Arab country (Severine and Shahani 2009).
    Similarly, the concept of human development should not be confused with the theories based on the formation of human capital, which consider the investment on human capital as a means to generate wealth (see also http://hdr.undp.org/en/statistics/indices/). Lastly, this approach is different from welfare theories and basic needs approach (Baldi 1998). In this respect, the human development approach is aimed at widening people’s capabilities.
    In the 1990s, the Pakistani economist Mahbub ul Haq identified four key principles linked to human development (Severine and Shahani 2009, pp. 29-30):
    1. equity is referred to the concepts of justice and impartiality and it incorporates a special attention to distributive justice among groups. The concept of equity is different from that of equality since it presupposes that disadvantaged groups, such as women, minorities, etc., may require preferential treatment;
    2. efficiency is related to the optimal use of available resources. It is necessary to show that a particular intervention offers the best outcomes in terms of people’s opportunities;
    3. participation and empowerment allow individuals to become the agents of the development processes. It is about the actual involvement of people in social and political dynamics.
    4. sustainability refers to the form of development such that its outcomes in the three spheres (social, economic and environmental) are durable over time, with specific reference to future generations.
    The Human Development approach is inherently multidimensional and plural and it includes the following themes:
    . social progress - equal access to knowledge, better nutrition and health services;
    . economic growth - as a means to reduce the level of inequalities within society;
    . guarantees for the human development of disadvantaged or marginalized groups (such as women, minorities, etc.);
    . enhancement of the basic freedoms of people (Sen 2000) and human rights protection;
    . sustainability, in its social, economic and environmental dimensions;
    . human security being concerned “with how people live and breathe in a society, how freely they exercise their many choices, how much access they have to market and social opportunities - and whether they live in conflict or peace” (UNDP 1994: 22-23).
    The most notable supporters of the theory on human development are Amartya Sen, Nobel Prize in 1998, and Mahbub ul Haq, founder of the Human Development Report in 1990.

    BALDI S., “L’indice di sviluppo umano delle Nazioni Unite. Vantaggi e limiti della misurazione sintetica dello sviluppo” in Affari Sociali Internazionali, n.3, 1998, Franco Angeli Editore.
    DENEULIN S. and LILA S. (Eds), An introduction to the Human Development and Capability Approach, London, Sterling VA, 2009.
    SEN A., Development as Freedom, Oxford, Oxford University Press, 1999.
    SEN A., Inequality Reexamined, Oxford, Oxford University Press, 1992.
    UNDP, Human Development Report 1990, New York, Oxford University Press 1990
    UNDP, Human Development Report 1994, New York: Oxford University Press, 1994
    UNDP, Human Development Report 1995, New York, Oxford University Press 1995
    UNDP, Human Development Report 2007, New York, Oxford University Press 2007

    Editor: Valentina GENTILE
    © 2010 ASSONEBB


    The Human Development Report (HDR) is a tool of the United Nation Development Program aimed at providing a user-friendly method to study and analyze the human dimension of development at both national and global levels. The HDRs are edited each year by different groups of leading scholars and practitioners. The first Report was published in 1990 under the direction of the Special Advisor of the Administrator of the UNDP, Mahbub ul Haq.
    In the last twenty years, the HDRs have deepened different issues related to human development and formulated new indexes, which provide quantitative data for measuring the different dimensions of human development. During the years, the Human Development Indexes (LINK) have been enhanced and further improved. These include the Human Development Index (HDI), Gender-related Development Index (GDI), Gender Empowerment Measure (GEM), and Human Poverty Index (HPI).

    UNDP, Human Development Report 1990, New York, Oxford University Press 1990
    © 2010 ASSONEBB

Selected letter: H English version

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