Italian Banks Research Articles

Looking at ‘Crying Wolf’ from a Different Perspective: An Attempt at Detecting Banks Under- and Over-Reporting of Suspicious Transactions

This study aims to assess banks’ compliance in reporting suspicious transactions. It does so by estimating an econometric model on the suspicious transaction reports (STRs) filed by individual Italian banks from each of the provincial districts they operate in. Regressors include (1) indicators of banks’ operational activities, (2) measures of money laundering risk and (3) proxies of economic activity, all of which at local level. At an operational level, the model provides a tool that supervisory authorities can use to detect potentially under-reporting intermediaries, thus better targeting off-site controls and on-site inspections. More in general, the results provide some insights on banks’ reporting behavior at large. The main threat to the effectiveness of anti-money laundering systems is considered the asymmetry in the incentives: since sanctions apply only to omitted reports, banks have an incentive to over-report, thus potentially flooding the authorities with noise (‘crying wolf’ syndrome). Results show that the STR-filing strategies adopted by the banks being scrutinized may not necessarily give rise to this scenario.

The role of nonlinearity on the financial development–economic performance nexus: an econometric application to Italian banks

Using data for Italian banks over the 2001–2012 period, we assess the existence of a nonlinear relationship between finance and growth, through the application of alternative measures of financial development. We show that both branch density and aggregate credits over GDP positively contribute to economic performance. While the relationship between branch density and economic activity is shown to be monotonic, an inverted U-shape is found once aggregate credits to GDP are employed as the main measure of financial development. Evidence presented in this paper further reveals that concentrated markets, that is, monopolistic and oligopolistic markets, facilitate economic growth, especially when credits to GDP are employed. Several robustness checks confirm our findings.

Pricing Defaulted Italian Mortgages

Our paper forecasts the expected recovery rates of defaulted Italian mortgage loans backed by either residential or commercial real estate. We apply an exponential Ornstein–Uhlenbeck process to model the price dynamics at the provincial and regional level, and two haircut models to estimate the liquidation value. Compared to our findings, rating agencies such as Moody’s, which use geometric Brownian motion to model the price dynamics, paint a rosier picture with higher recovery rates. As a consequence, non-performing mortgage loans held by Italian banks might be overvalued.

The effects of the credit selection criteria on non-performing loans

PurposeThis paper aims to deal with the perceptions of banks’ managers about some criteria for assessing creditworthiness related to firms and how these criteria affect non-performing loans (NPLs). The paper wants to respond to the following research question: “Which criteria influence the magnitude of NPLs?” The evidence is based on the improvement of credit quality in the Italian banking system, which the authors study in aggregate and size-specific analyses, creating two subsamples (large and small banks).Design/methodology/approachThe methodology used was a mixed method approach. The values of the variables were quantified according to the information derived from Thomson Reuters (Eikon, Datastream), the financial reporting of the banks and questionnaires directly administered to the bank managers.FindingsThis research about loans selection criteria provides useful indications for “The Basel Framework”. The results show that managers of the large banks are improving the approach of allocating the loans; the managers of the small banks are getting worse in the period 2006-2016. Therefore, it should be valuable to build a new standard about qualitative and quantitative criteria to recognize credit risk. In particular, these criteria could be adopted to reduce NPLs, and they should be different in small banks and large banks.Originality/valueThe study is part of empirical research investigating the causes of the significant increase in NPLs in the Italian banking system in 2006-2016. Most research interprets the increase in NPLs in the Italian banking system only as an effect of the crisis in the Italian entrepreneurial system. This research offers a different interpretation of the problem, interpreting the phenomenon as a delay of the banking system in investing in an effective information criterion.

Why the Italian Banking System that ‘Cruised Over’ the Global Financial Crisis, Found Itself Roiled by the Sovereign Debt Crisis: Reviewing and Highlighting the Key Issues

Why the Italian Banking System that ‘Cruised Over’ the Global Financial Crisis, Found Itself Roiled by the Sovereign Debt Crisis: Reviewing and Highlighting the Key Issues

The Covid-19 Crisis. Impacts And Risks For The Italian Financial System In A Comparative Perspective

La versione italiana di questo documento è disponibile al seguente link: https://ssrn.com/abstract=3663335The present Report analyses the economic impact of the Covid-19 pandemic as of the first semester of 2020 both in the domestic and in the international framework. Some analysis are updated to September and October 2020. The pandemic is a shock exogenous to the economic and the financial system, that symmetrically hit the supply and the demand side. It has also spread asynchronously over the globe, thus contributing to the persistence of its economic consequences. Many uncertainties about its severity and length make it difficult to forecast the development of the crisis, although it is clear that financial markets and the bank sector may become an amplifier of the shock and that pre-existent vulnerabilities as well as policy measures will be key to defeat the crisis. At the upsurge of the Covid-19 disease, Italy was already experiencing a weak economic growth; Italian non-financial, listed firms were showing a profitability growth lower than their European peers; domestic stock market has never recovered the levels achieved before the 2008 global financial crisis. At the same time, public deficit was under control as well as the conditions prevailing on sovereign debt markets; Italian banks were more resilient than they were in the past; households remained characterised by low debt levels and a high ratio of financial wealth to disposable income.The lockdown introduced in Italy last March as a containment measure of the pandemic has severely affected both the supply side and the demand side of the economy. Similar, although lower, effects were recorded in the major Eurozone countries. During the first term of 2020, both domestic and foreign financial markets experienced heightened turmoil and recorded severe losses only partially recovered in the following months thanks to the unprecedented policy measures adopted in the euro area and at the domestic level. Overall, the pandemic poses many downside risks to economic recovery, also because of the escalation of new Covid-19 cases across countries. The crisis also delivers some important lessons. First, policy makers need timely forecast of macroeconomic and financial risks, which only innovative analysis based on real-time and high frequency data may grant. Second, international cooperation is key, given the global dimension of the crisis and the looming risks driven by increasing geopolitical tensions and by a no-deal Brexit. Third, the pandemic is accelerating digitalisation of financial services and sustainable and responsible investments, that might require an update in the regulatory agenda.The Covid-19 crisis is deeply changing and will probably keep changing the economic and social framework. Both financial markets regulators and supervisors, as well as policy makers in general, need to develop tools and skills allowing a timely action whereas required by rapidly evolving conditions. The data driven approach already prompted by the 2008 global financial crisis need to be strengthened further, also through the application of investigation methods based on data science and data analytics.

The Pitfalls of Multinational Banking. The Case of Italian Banks in Egypt Before WWII

The activity of Italian banks in Egypt in the first half of the 20th century represents an almost unexplored field of investigation in economic and banking historiography. This article is the first attempt to innovate the Italian banking literature in this area, providing evidence from a country strategically located in the Middle Eastern geopolitical framework. At the same time and more generally, it contributes to the multinational banking literature on the characteristics and criticalities of banks belonging to multinational groups, which are subject to a ‘liability of foreignness’ due to political, geographical and economic differences between the home country and the host economy. The paper addresses the main drivers of success of Italian banks, which were able to occupy primary positions within the Egyptian banking sector despite their relatively modest capital size thanks to an aggressive policy focused on the cotton market. It then highlights the reasons for the subsequent problems these institutes faced, showing the difficulties of a latecomer and capital-poor country, such as Italy, in carrying out a catching-up process aimed at widening its influence over geographical areas considered strategic in terms of political and commercial penetration.

The rise of online banks in Italy “WIDIBA Bank” Case Study

The digitalization of technologies for the functioning of the country’s economy, in particular banking institutions, has made a significant impetus to accelerate their development. It is stated that the use of advanced information technologies in the banking sector of the economy (which was gradually formalized into the concept of “online banking”) has greatly facilitated the implementation of financial transactions, in particular, minimized the physical circulation of money. The purpose of the article is to study the features and principles of online banking on the example of the Italian bank WIDIBA. Methodical support of the paper includes a method of analysis of specific situations. The key components of the case method of the study are research on the basis of literature review; formalization of key theses (issues) in the context of the unresolved part of the study; accumulation and analysis of collected information; identification of key features of the issue. This research was carried out in the light of two aspects: the strategic principles of the spread of online banking in Italy; digital technologies in the context of the strategic perspective of the Italian bank WIDIBA. The paper considers the historical aspects of the introduction and use of online banking services. It is noted that in Italy today there are 207 publicly registered commercial establishments, of which 81 are located abroad, and 6 operate mostly in the format of providing online banking services. The object of this research is the activity of the Italian bank WIDIBA, which is justified by its valuable practical experience in formalizing a plan of adequate timely strategy for entering the market of online banking services on the basis of a carefully developed development strategy. The theoretical researches were carried out in the work, in particular, in the following directions: definition of strategic actions of bank establishment according to a time lag of functioning; analysis of the budget of the banking institution (net profitability, interest margin, operating and administrative expenses, etc.); analysis of the income statement of the bank (the ratio of net profit and loss, interest margin and brokerage margin); work with financial report or balance sheet data on the structure of assets, liabilities, and investments, retained earnings; study of trend dynamics of cash flows (operational, financial, investment and free cash flows). Excellent strategies are analyzed, which demonstrate how the banking sector is extremely dynamic and, that technological investments still allow easier access to new operators in case of the implementation of innovation strategies. Keywords: Online banks; online banking; electronic banking; fintech; financial services; WIDIBA; banking sector; banks’ strategies.

The use of Z-Score to predict UTP loans

The Z-Score model developed by Altman in 1968 is considered one of the more reliable predictors of bankruptcy. In contraposition to the existing literature, the paper aims to investigate the Z’-Score and Z’’-Score ability to predict unlike-to-pay (UTP) loans, which is an event far earlier than insolvency. To investigate this relation, the study uses a unique sample of UTP loans, provided by a major Italian bank, and applies, as a predictive model, the Logit model, well known in academics. Final results confirm that the Z’-Score and the Z’’-Score are able to forecast UTP loans. Furthermore, the findings of the papers reveal the importance of corporate governance variables in predicting financial failures.

Disentangling the Texas ratio: the case of the Italian banking sector

Disentangling the Texas ratio: the case of the Italian banking sector

The In-house Credit Assessment System of Banca d'Italia

Banca d’Italia’s In-house Credit Assessment System (ICAS) is one of the sources for the valuation of collateral agreed upon within the Eurosystem’s monetary policy framework. It helps to provide liquidity to those Italian banks that cannot rely on an internal model (IRB). Its role has become all the more important in the aftermath of the financial crisis relating to the COVID-19 pandemic of 2020. The paper first outlines the Eurosystem’s collateral framework and describes Banca d’Italia’s ICAS in terms of architecture and governance. It then presents in detail the underlying statistical model, including the definition of default adopted, and the validation process for the statistical model and for the expert system. The paper concludes by providing data on the amount of collateral pledged with an ICAS rating and on the main features, including the probabilities of default, of the Italian non-financial companies rated by the system.

Sustainable Banking; Evaluation of the European Business Models

[enter Abstract Body]Sustainability has become one of the challenges of today’s banks. Since sustainable business models are responsible for the environment and society along with generating economic benefits, they are an attractive approach to sustainability. Sustainable business models also offer banks competitive advantages such as increasing brand reputation and cost reduction. However, no framework is presented to evaluate the sustainability of banking business models. To bridge this theoretical gap, the current study using A Delphi-Analytic Hierarchy Process method, firstly, developed a sustainable business model to evaluate the sustainability of the business model of banks. In the second step, the sustainability performance of sixteen banks from eight European countries including Norway, The UK, Poland, Hungary, Germany, France, Spain, and Italy, assessed. The proposed business model components of this study were ranked in terms of their impact on achieving sustainability goals. Consequently, the proposed model components of this study, based on their impact on sustainability, are respectively value proposition, core competencies, financial aspects, business processes, target customers, resources, technology, customer interface, and partner network. The results of the comparison of the banks studied by each country disclosed that the sustainability of the Norwegian and German banks’ business models is higher than in other counties. The studied banks of Hungary and Spain came in second, the banks of the UK, Poland, and France ranked third, and finally, the Italian banks ranked fourth in the sustainability of their business models.

Geofinance between national and firm internationalization strategies: an analysis of the Italian banking system across borders

Geofinance between national and firm internationalization strategies: an analysis of the Italian banking system across borders

The Carbon Footprint of Italian Loans

This article presents a first insight on the carbon content of business loans in Italy, using three different methods to identify the sectors more exposed to transition risks. According to our estimates, the loans’ carbon footprint of Italian banks is small compared to other European peers and the outstanding loans exposed to transition risk can be estimated in a range between 37 and 53 percent of total loans as of 2018 data, according to the methodology used. This information can be used as a starting point to evaluate, within a climate-scenario framework, how different climate policies influence the stability of the banking sector.

Disentangling the Texas ratio: the case of the Italian banking sector

According to the ECB, the Texas ratio represents a key performance indicator that shows the dependency between the NPLs and the level of bank capitalisation. Using a sample of twelve Italian listed banks, we disentangle the main drivers of the Texas ratio and evaluate its impact on profitability, probability of default and price-to-book value. Our findings question the overall effectiveness of the restructuring measures undertaken by both supervisory and regulatory authorities to cope with the NPLs' issue.

Banks' Reactions to Creditor Rights Changes

We study how banks adjust their portfolios in response to a deterioration in creditor rights. We construct a comprehensive creditor rights index based on a series of quasi-natural experiments in Italy and exploit a unique proprietary credit-level database of one of the largest Italian banks. Our data includes the universe of the bank’s portfolio over time, allowing us to provide evidence on the banks’ reaction to changes in creditor rights. We document a fall in recovery rates, an increase in interest rates, and a reduction in credit. There is also a movement away from smaller firms and towards secured loans with floating rates. Features such as the strength of lending relationships and the bank’s market power mitigate the magnitudes of these responses. Our analysis reveals that these features constitute important tools to attenuate the effect of poor creditor rights on firms’ access to financing. Our results support the seminal works of Rajan (1992) and Petersen and Rajan (1995).

Market power and stability of financial institutions: evidence from the Italian banking sector

Purpose This paper aims to explore the relationship between bank market power and stability of financial institutions in Italy between 2001 and 2012. The authors first test the existence of a U-shaped relationship between market power and financial stability. Second, they regress the market share indicator on bank risk-taking to underline whether financial stability is affected by increasing or decreasing the market power of banks. Third, they explore whether this relationship is affected by the size, level of capitalization and credit insolvency of banks. Design/methodology/approach Relying on highly territorially disaggregated data at labor market areas level, the authors estimate the impact of bank market power and other explanatory variables on a proxy of risk taking behavior such as the banking “stability inefficiency” derived simultaneously from the estimation of a stability stochastic frontier. Bank market power is taken into account through an individual measure based on loans. Financial stability is calculated through the Z-score. The authors use, as risk-taking measure, the stability inefficiency whose estimation approach is the stochastic frontier analysis. Findings The empirical evidence shows that the inefficiency of financial stability is found to be U-shaped related with respect to the measure of market power. Bank size is an essential factor in explaining the relationship between bank market power and risk-taking. Cooperative banks have fewer incentives to gain market power to better perform in term of risks. The reform of the cooperative banks that took recently place in Italy is not supported by the data. Originality/value The relationship between bank market power and financial stability has been analyzed using a rich sample of cooperative, commercial and popular banks in Italy over the 2001-2012 period. The authors rely on labor market areas being sub-regional geographical areas where the bulk of the labor force lives and works. The paper investigates the market power-stability link considering both cooperative and non-cooperative banks. Indeed, specific attention has been paid on cooperative banks because of their mission in favor of the local community as only few studies, to the best of the authors’ knowledge, examine cooperative banking.

Visualization of Big Data Text Analytics in Financial Industry: A Case Study of Topic Extraction for Italian Banks

Textual data and analysis can derive new insights and bring valuable business insights. These insights can be further leveraged by making better future business decisions. Sources that are used for text analysis in financial industry vary from internal word documents, email to external sources like social media, websites or open data. The system described in this paper will utilize data from social media (Twitter) and tweets related to Italian banks, in Italian. This system is based on open source tools (R language) and topic extraction model was created to gather valuable information. This paper describes methods used for data ingestion, modelling, visualizations of results and insights.

Methods and models for building bank branches. A Multicriteria approach for a decision-making tool

This work intends to study the latest trends in building branch systems, testing a mathematical model in the Italian banking sector at its current state of art. Particular attention is given to which is the relationship that links evolution, in terms of technology and needs, both of bank and customers, with physical spaces (branches).The questions that will be possibly answered are: what is the value of a banking branch system and how building strategies can impact on it? How should they be located in the territory? What construction form should they take to adapt to the new needs?A meta-design has been developed to identify the guidelines to be followed and the interventions to be taken in practice, by simulating a business case that, through the application of a multi criteria analysis, can be a reference for credit institutions. The developed methodology is then applied to a portion of the city of Milan, in order to practically experiment the feasibility and the outcomes.

Performance dos bancos brasileiros no contexto de digitalização

Considerando o contexto de digitalização do sistema bancário brasileiro, o presente estudo avalia como o investimento em tecnologia vem afetando a performance das instituições financeiras. Diversos estudos avaliaram o impacto da digitalização nos resultados dos bancos. Hernando & Nieto (2007) e Ciciretti, Hasan & Zazzara (2009) identificaram ganhos de rentabilidade e redução de custos com a implantação do internet banking nos bancos espanhóis e italianos. Neste estudo foram analisadas, por meio de regressões lineares, a relação entre investimentos em TI e medidas de rentabilidade (ROA, ROE e margem de intermediação) e despesas (de pessoal e administrativas). Foi também avaliada, por meio de uma análise envoltória de dados (DEA), a evolução das eficiências técnica, de custos e alocativa dos bancos brasileiros, sendo os resultados segregados em termos dos investimentos em TI. Os resultados sugerem que o investimento em tecnologia da informação pelos bancos possui uma relação significativamente positiva com as variáveis de rentabilidade e negativa com as despesas administrativas, corroborando parcialmente com os estudos de Hernando & Nieto (2007). Foi verificado também melhora na eficiência técnica dos bancos brasileiros ao longo do período analisado, principalmente entre aqueles que possuem maior investimento em TI.