Valeria Venturelli

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.

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

How do income diversification, firm size and capital ratio affect performance? Evidence for bank holding companies

We use panel data from 52 Italian Bank Holding Companies (BHCs) over the period of 2006 to 2011 to test how revenue diversification affects bank performance. Unlike studies of diversification that focus on its effect on equity and debt values and risk return portfolio strategies, we investigate how various nontraditional revenues mix impact performance. Diversification increases bank profitability on a risk-adjusted basis; however, no statistical effect in terms of risk is observed. We also argue that the results of previous research on the impact of diversification may differ because of its interaction with asset size and degree of capitalization. Our models are robust to different measures of performance, endogeneity tests and the effect of the financial crisis. The results have strategic implications for the consequences of bank performance and stability that are relevant to bank managers, regulators and supervisors.

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...

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.

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.

Main Features of the Italian Financial System

During the last few years, the main countries’ financial systems have undergone profound changes in terms of both the structural characteristics of the systems themselves and the financial behaviours of operators. Common trends linked to the development of financial markets, the growing role of institutional investors, the consolidation of banking systems, and the formation of large banking conglomerates have emerged; however there are still differences among financial systems, which can lead to variations in the magnitude of the consequences of the financial crisis. Therefore, at the European level, discussion of the convergence of banking models must be accompanied by an attempt to identify the distinctive features of the “ideal” financial system. The crisis has revealed that the banking sector of a country can be considered sound and thus an aid to economic growth and prosperity if it is founded on a number of key principles (Vaciago and Zadra 2009): 1. It must focus above all on financing the economy and the private sector. 2. It must be supported by a high level of retail funding. 3. It must be supported by a solid assets structure. 4. Banking services must be provided through distribution channels (i.e. branches) that ensure good geographical coverage and accessibility to the clientele.

Access to Finance of Innovative SMEs

This chapter surveys the theoretical literature on the financial constraints affecting small and medium-sized enterprises (SMEs)1 and then briefly introduces the reasons supporting government intervention to sustain the companies most at risk of credit rationing: new firms and small firms with innovative business plans in the early stages of their development. The focus here is mainly on SMEs, although the financial constraints on innovative operations also affect larger firms (Hall, 2002; 2005).

Book and Market Values of European Banks: Country, Size, and Business Mix Effects

In the years since the outbreak of the crisis, the financial markets have persistently reduced the market value of European banks as a consequence of macroeconomic, regulatory, and structural factors. Even though these factors have affected the European banking industry as a whole, the market valuation of banks have shown differences across country, size, and business mix profiles. In line with the existing literature on bank market valuation, this study tests for the difference between the market-to-book ratios of the large European banks using a variety of indicators typically affecting bank market value. To verify our research questions, we first regress the market-to-book ratio over performance measures, risk indicators, and growth patterns. Then, in a second step, we test whether bank business or country characteristics affect bank market valuation. Our panel consists of all large publicly traded bank holding companies at the European level. Large publicly traded banks comprise all listed banks with consolidated assets exceeding € 50 billion in 2015. The results highlight the relevance of the country context for the consequences on bank performance and stability.

A Multidimensional Approach to Equity Crowdfunding: Bridging the Equity Gap and Boosting Social Capital

Drawing inspiration from microfinance and crowdsourcing, equity crowdfunding has become a valuable source of fundraising for entrepreneurs and small and medium-sized enterprises (SMEs). Crowdfunding facilitates access to finance for those companies that would otherwise have great difficulty in accessing it and is viewed as a potentially revolutionary application of social networking with direct consequences for supporting sustainability and innovation. Our aim is twofold: (a) to explore the characteristics of equity crowdfunding campaigns launched by different European platforms and (b) to analyse the relationship between social capital created online and the number of investors sustaining the campaign. Given the web context in which it develops, the role of online social capital in the project’s success should be considered from a broad perspective that involves both the founder’s and the project’s social networks. These two levels of analysis represent different networks that mobilize different resources and frame different types of crowds.