Pietro Alessandrini

The geography of banking power: role of function distance

In this paper we analyse the new geography of the Italian banking system on the basis of the integration pressures of recent years. The analysis of the evolution of thebanking system is focused on the concept of distance. In particular, we not only refer to the traditional distance between bank and customers, that is the operationaldistance, but also to the distance between decision centres of banks and local systems, that we define as functional distance. The focus of the paper is on the effect that functional distance (or proximity) has on the performance of banks in terms of credit allocation, efficiency, and profitability. Our regression analysis proves that functional proximity has asymmetric territorial effects on the banks performance. Its beneficial effects are more evident in the less developed southern regions, than in the more advanced Centre-North regions of Italy.

External Imbalances and Financial Fragility in the Euro Area

This paper presents two views of the European sovereign debt crisis. The first is that countries in the South of the Eurozone were fiscally irresponsible and failed to implement pro-competitive supply side policies. The second view holds that the crisis reflects a deep divide between the external surpluses of the North and external deficits of the South. Basic stylized facts cast doubt on the explanation based on the first thesis alone. A relatively simple model shows how poor fundamentals can create a debt problem independently of fiscal responsibility. The empirical analysis of the determinants of government bond yield spreads relative to Germany suggests that both views in fact provide useful insights into the roots of the current sovereign crisis. However, differences in growth and competitiveness and capital flows between North and South have assumed a much more dominant role since the onset of the global crisis.

Resurrecting Keynes to Stabilize the International Monetary System

We adapt the basic principles of the Keynes Plan and argue for the creation of a supranational bank money that would coexist along side national currencies and for the establishment of a new international clearing union (NICU). These principles remain timely because the fundamental causes of the instability of the international monetary system are as valid today as they were in the early Forties. The new international money would be created against domestic earning assets of the Fed and the ECB. The quantity of this supranational bank money would be demand driven and thus would differ from the helicopter-money Special Drawing Rights. NICU would not hold open positions in assets denominated in national currency and consequently would not bear exchange rate risk. NICU would be more than an office where to record credit and debit entries of the supranational bank money. The financial tsunami that has hit the United States in 2007-2008 provides a unique opportunity for a coordinated strategy.

Geographical Organization of Banking Systems and Innovation Diffusion

The empirical literature is largely supportive of the importance of financial constraints and identifies local banking development and relationship lending as possible determinants of firms’ propensity to innovate. In this chapter, we argue that the spatial organization of banking systems and the distance of local branches from banks’ decisional centers are major factors influencing the effectiveness in collecting and processing soft information on local innovative firms. We provide evidence showing that, while branch density and the length of credit relationships have a positive causal effect on innovation when considered singularly, after controlling for the functional distance between the banking system and the local economy they lose statistical significance in favor of the latter. In this perspective, our results suggest that the geographical organization of banks and the spatial distribution of their headquarters represent key variables for local development.

Asset Restructuring Strategies in Bank Acquisitions: Evidence from the Italian Banking Industry

One of the most lively debated effects of banking acquisitions is the change in lending and asset allocation of the target bank in favour of transactional activities, at the expense of small and informational opaque borrowers. These changes may be the result of two distinct restructuring strategies of the asset portfolio of the bidder bank. An asset cleaning strategy (ACS), in which the acquiring bank makes a clean sweep of all the negative net present value activities in the portfolio of the acquired bank, and an asset portfolio strategy (APS), in which the acquiring bank permanently changes the portfolio allocation of the acquired bank. In this paper we focus on Italian bank acquisitions and test which asset restructuring strategy was predominantly pursued over the period 1997-2003. Moreover, we estimate both a model for the whole Italian banking industry and a model for the acquired banks located in economic backward Southern regions. At the national level we find evidence of a primacy of ACSs over APSs. When we concentrate on bank acquisitions that occurred in the Mezzogiorno (Italy’s Southern regions), evidence seems to reverse, i.e. APSs dominate over ACSs.

Global Banking and Local Markets

In the early 1990s, a widely-shared opinion among scholars and practitioners was that the importance of physical proximity between banks and borrowers would be doomed to drastically decrease over time and, put in extreme terms, the end of banking geography would become a real possibility. However, the empirical evidence show an unrelenting importance of local credit markets for small borrowers and local economic development. In the paper, we selectively review the literature on the real effects of bank consolidation and produce new evidence on the role of headquarter-to-branch functional distance on relationship lending.

In the absence of fiscal union, the Eurozone needs a more flexible monetary policy: A reply

The authors (AF and that AF and that their original model simply shows that, in the aftermath of the financial crisis, the size of the balance sheets of major central banks has exploded. Considering the high correlation between the size of central banks’ balance sheets and the monetary base, the obvious question is: if the quantity of the monetary base is not a useful concept, why are we having an indigestion of quantitative easing? JEL: E42, E52, E58.

The Changing Geography of Banking and Finance: The Main Issues

Technological progress, deregulation, and consolidation have deeply changed the geography of the banking industry in many countries. In particular, two contrasting trends have emerged from the intense integration and consolidation process that have swept the European and US banking industry in the 1990s: the geographical diffusion of banking structures and instruments and the geographical concentration of banking power in few financial centers within each country. The first trend emerged as a result of the easing of geographical restrictions on banking activity, the opening of new branches, and the expansion of impersonal methods to conduct business, such as Internet-banking, home-banking, or phone-banking, which contributed to greatly reduce the operational distance that separates banks from their clientele

Banks and Firms in Industrial Districts (Banche e imprese nei distretti industriali)

Given the changes that occurred in the organization and specialization of Italian industrial districts and the changing geography of the banking system, in this paper is we aim at reassessing the bank-firm relationship in industrial districts. Using firm-level data on a sample of Italian SME, we examine the determinants of credit rationing and relationship lending. Firstly, we test whether firms located in industrial district area have more access to banking credit and rely more on relationship lending. Secondly, we assess if being localized in industrial clusters have heterogeneous effects due to the structure of local credit markets. Our results point out the firms operating in industrial districts are less credit rationed, while their probability of relationship lending is not significantly different from the one of the average firm. Furthermore, a higher operational proximity of banks to local economies is associated with more access to banking credit and and to a lower probability of engaging in relationship lending, while a higher functional distance of the banking system from local communities is associated with tighter financing constraints and a lower probability of relationship lending. These effects are significantly intensified for firms located inside industrial districts.