Analysis of Solvency in Italian Local Governments: The Impact of Basel II

The IUP Journal of Financial Risk Management, Vol. VIII, No. 3, September 2011, pp. 17-42

Posted: 6 Jul 2012

See all articles by Francesca Manes Rossi

Francesca Manes Rossi

Università Degli Studi di Salerno - Department of Management Research

Multiple version iconThere are 2 versions of this paper

Date Written: July 6, 2012

Abstract

This paper proposes a classification model of the financial reporting of Italian Local Governments (ILGs) and a grid of indicators supporting financial analysts in their solvency ratings. Due to their increased financial autonomy, ILGs increasingly need to resort to various forms of borrowing. However, the Basel II agreement requires financial institutions to carry out a thorough assessment of the creditworthiness of all potential borrowers, including ILGs. After reviewing the main criteria adopted by rating agencies for their analyses, this paper focuses on the assessment of the financial situation and debt position of ILGs. Such entities use a ‘financial’ accounting system based on commitment and ascertainment, to which the cash flow analysis model provided by IPSAS cannot be applied. The proposed classification model and the relevant grid of indicators were applied to the ILGs, differing in size but located in the same area, in order to test whether these tools could provide a thorough assessment of the financial situation of any LG. Finally, the study proposes an equation to define the maximum degree of indebtedness for an LG, in compliance with the limits set by the current regulations in Italy.

Suggested Citation

Manes Rossi, Francesca, Analysis of Solvency in Italian Local Governments: The Impact of Basel II (July 6, 2012). The IUP Journal of Financial Risk Management, Vol. VIII, No. 3, September 2011, pp. 17-42, Available at SSRN: https://ssrn.com/abstract=2101523

Francesca Manes Rossi (Contact Author)

Università Degli Studi di Salerno - Department of Management Research ( email )

Via Giovanni Paolo II, 132
Fisciano, Salerno 84084
Italy

HOME PAGE: http://www.distra.unisa.it/Economia_Aziendale/ManesRossi/manesrossi.php

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Abstract Views
261
PlumX Metrics