Elisabetta Gualandri

Financial Crisis and New Dimensions of Liquidity Risk: Rethinking Prudential Regulation and Supervision

This paper aims to stress the importance of market liquidity for the stability of the financial system, emphasizing the pivotal role played by liquidity risk in the development of the current financial crisis, pointing out the flaws of regulation and supervision and stressing the need for their reform. We first investigate the evolution of the concept of liquidity and the nexus between the transformations of financial systems and their increased vulnerability to liquidity risks. Then we focus on the causes of the emergence of liquidity risk in the ongoing financial crisis. We point out two intertwined processes: firstly, the huge increase in financial assets stemming from the shift to an “originate-to-distribute” intermediation model; secondly, the growth of a parallel financial circuit. After this, we focus on the main lessons for regulation and supervision: the case for adjustments to Basel 2, market liquidity and Otc markets, architecture of supervisory authorities and perimeter of controls, coordination, of national liquidity regimes, at least for cross-border groups.

The Role of the Public Sector

Small and medium-sized enterprises (SMEs) play an essential role in the economy internationally and above all in Europe, where over 20 million SMEs account for around two-thirds of jobs and half of turnover in the non-agricultural business sectors. SMEs’ contribution to growth and employment, not to mention innovation, makes them key players in the achievement of the Lisbon Strategy goals (European Investment Bank, 2005). At the same time, restrictions on SMEs’ access to external finance create undesirable obstacles to employment and growth.

Bridging the Equity Gap for Innovative SMES

List of Tables List of Figures List of Boxes Acronyms and Abbreviations About the Authors Preface and Acknowledgements Introduction E. Gualandri and V . Venturelli Innovation and economic growth E . Gualandri and V. Venturelli Access to Finance of Innovative SMEs V . Venturelli Equity gap and innovatives smes E . Gualandri An original equity requirement estimation model L . Canovi and V . Venturelli The intermediaries in the risk capital industry A . G. Grasso Size and evolution of the risk capital industry A . G. Grasso The role of equity markets F. Braga and M. Demasi The role of the public sector E . Gualandri and P . Schwizer Bibliography Index Notes

The determinants of equity needs: size, youth or innovation?

Purpose – The purpose of this paper is to set out to critically review the approaches developed for the assessment of the equity gap, extending the quantitative approaches to the equity gap and developing a demand‐side model that allows accurate prediction of the future demand for equity.Design/methodology/approach – The first part of the paper deals with financial constraints for innovative SMEs and the possible existence of an equity gap. The next step concentrates on calculating the additional amount of equity needed in order to finance the expected growth in sales.Findings – With regard to the approaches developed to estimate the scale of the equity gap, our main finding is that demand‐side analysis is the least well developed. Through the application of an original model to a sample of Italian firms, we find that the degree of innovation cannot be considered the main discriminating factor when it comes to the differences in equity requirement per unit of marginal sale; the analysis reveals the pivota...

Towards a Macroprudential Policy in the EU: Main Issues

The aim of the paper is to analyze the state of the art of macroprudential policies (MAP) with a focus on the case of the European Union. To this end the institutional framework of MAP is introduced and discussed with regard to several issues: the relationships and/or the conflicts with other policies and among the different institutional bodies involved, their mandate, accountability and governance. The operative framework - intermediate and final targets and toolkit - is specifically analyzed with regard to the case of the European Union and the introduction, in 2011, of a macroprudential supervisory pillar based on the European Systemic Risk Board (ESRB). Finally the main features of the new European supervisory architecture are addressed: the organization of MAP within the Single Supervisory Mechanisms (SSM), the definition of the role of the European Central Bank (ECB) and of the ESRB as far as macroprudential policy is concerned. In the conclusions, we evaluate the new architecture which is quite complex and cumbersome, and the challenge that the SSM is facing: to achieve comprehensive, rational, effective and efficient supervision, avoiding overlapping of competences and clarifying the specific roles of different bodies while keeping away additional burdens for the institutions supervised.

Internal Corporate Governance and the Financial Crisis: Lessons for Banks, Regulators and Supervisors

This paper aims to highlight the importance of banks’ Internal Corporate Governance (ICG), viewed as an operational mitigation instrument, in a context where banks enjoy a high degree of organisational flexibility due to principle-based regulatory and risk-based supervisory approaches. The recent crisis has shown, on the one hand, that financial mitigations (i.e. capital requirements) are, per se, not sufficient to ensure the stability of the banks (which underpins the soundness of the entire financial system) and, on the other hand, the failure of the light-touch supervisory approach. The main research question is whether the improvement of ICG, involving proper protection for stakeholders and the switch to a more intrusive supervisory model, will be able to offset the failures of market discipline revealed by the crisis and, together with Basel 3’s reinforced capital adequacy regime, strengthen the resilience of the financial system, without the reintroduction of structural reforms. In the European Union, the new European Systemic Risk Board (ESRB) and, above all, the three new European Supervisory Authorities (ESAs) will play a crucial role in this process.

The Financing of Italian Firms and the Credit Crunch: Findings and Exit Strategies

The aim of the paper is to analyse how credit crunch has modified the traditional bank-firm relationship with a particular attention to the Italian situation. Our analysis reinforces the finding that in Italy, the credit available to the real economy is insufficient in terms not only of quantity but also of quality. The subsequent step is to identify and discuss possible exit strategies for eliminating the credit crunch and to overcome serious intrinsic shortcomings in terms of alternative instruments, markets and intermediaries. In fact, if on the one hand the crisis has revealed the underdevelopment of the Italian financial market, the insufficient role of institutional investors, the embryonic state of the corporate bond markets and the virtual non-existence of commercial paper markets; on the other hand, it could finally provide the opportunity for the development of these channels. The changing role of banks in the new scenario is also analysed as well as the characteristics firms will require to benefit from it.

Consolidation in the European financial industry

List of Tables, Figures and Boxes Preface Acknowledgements Notes on Contributors Acronyms and Abbreviations Consolidation in the Financial Industry R.Bottiglia, E.Gualandri & G.N.Mazzocco M& A in Banking: A Literature Review E.Geretto M& A in Banking: Measurement of Some Effects E.Geretto & G.N.Mazzocco M& A and Equity Risk in the EMU Financial Sector R.Ferretti, F.Pattarin & V.Venturelli M& A Activity among Major European Banking Groups R.Bottiglia & L.Chiaramonte Financial Crisis and Ownership of Global Banks R.Bottiglia & A.Paltrinieri Bank Size, Consolidation and Operational Risk V.De Crescenzo & F.Pichler Supervision of European Insurance Groups A.Dreassi & S.Miani Cross-border Groups: Supervision after the Crisis S.Cotterli& E.Gualandri Consolidation in the Stock Exchange Industry G.Chesini Measuring Value in Stock Exchange Mergers J.Floreani & M.Polato Necessary Reforms for Book-Entry Securities A.V.Guccione Notes References Index

The Business Model of Banks: A Review of the Theoretical and Empirical Literature

The business model (BM) has become a key concept in banking literature. The topic’s relevance is due to the impact of the crisis on bank profitability and risk levels, leading to new challenges for bank managers, analysts and regulators. The paper draws on the strategic management studies to deepen and specify the concept of corporate strategy, business strategy and business model. This theoretical frameworg guides our review of banking business model literature.

Equity Gap and Innovative SMEs

The debate concerning the financing of innovative small and medium-sized enterprises (ISMEs) finds that these firms face an equity gap, in other words, a shortage of risk capital investment. The aim of this chapter is to define the concept of the equity gap within the broader concept of the financing gap.