Structural changes in the financial system that have happened over the past decade, and are still occurring, have expanded the range of pos- sible evolutionary trajectories of the organizations which operate in it. This has determined, at the same time, an improvement of the rela- tionship between banks and businesses, with particular reference to the administration of the risks of the banking business.
Coherently with the viable system approach adopted in this work, the bank is a viable enterprise system, since it has the defining characteris- tics of this abstract category.
In this regard, using the basics of the above-mentioned approach, the goal to be pursued with this book is to analyze the risk of lack of knowl- edge in the management of banks, with particular reference to the role of intangibles in the assessment of creditworthiness.
The theoretical models of reference are the classic ones of manage- ment studies. The viewpoint from which the bank is studied, is that of a company that provides financial services to a client company – with conditions and pricing – just as happens in a normal customer–supplier relationship. Such an approach to the study of banking is innovative compared to traditional models of theories, typically treated as a part of the banking technique. Indeed, it shifts the focus from technical tools (such as loans, credit limits, and checking accounts) to the administra- tion of risk with particular regard to the risk of credit and the role of intangible assets in the current rating models.
The logical path through which the present work articulates, is developed in six chapters.
Chapter 1 deals with the analysis of thecontext.Inthis area, starting from the definition of the systemic-life key of the financial system, the attention is focused on the governing body and the operational struc- ture of such a system, with particular reference to the Italian reality. This is necessary to overcome some basic ambiguity and open the way to an interpretation of the banking system as a vital one. To all this we must add that, in an increasingly globalized context, all types of business, and therefore also banks, must have the ability to combine the objectives of creating both economic and social value, as effectively argued in studies of strategic management and emphasized in the Social Doctrine of the Church. In this context,the key role of the bank in creating values,and generating positive effects for the development of entire regions, becomes clear. In this sense, it is clear that cooperative banks and areas to which they belong co-evolve in search of competitive advantages, being resourceful for the development of both.
In this dialectic of mutual interdependencies, the culture of soli- darity,along with the ethics matrix that historically characterizes the cooperative bank,as well as its structural and dimensional characteris- tics, play an important role. There will be important repercussions for the same development possibilities of the bank and its local social and institutional context.
From this perspective, thee merging reality of forms of association on the territory promoted by smaller cooperative banks, here called local network of mutuality, are the result of adaptation processes to asocial and institutional context that is changing. These networks, in turn, rep- resent organizational forms able to exercise significant influences over the territories in which small banks operate, being able to represent adriving force for a healthy and more human development of more areas, more local communities, and more businesses.
In Chapter 2,the fundamental aspects behind the Basel Accords are analyzed. These aimed at strengthening the minimum assets of banks, and increasing risk management, thereby enhancing the efficiency, pro- ductivity, reliability, and solidity of the international financial system. In this context, the two methods the banks can adopt to evaluate credit risk are examined in depth: the Standardized Approach and the Inter- nal Ratings-Based Approach (which has two versions – Foundation and Advanced). The choice between the two methods – that differ in com- plexity, the nature of the assigned rating, and the number of computed variables – is essential, as it must be as coherent as possible with respect to the risk and the operational reality of the bank. The chapter ends with the highlighting of the weaknesses in Basel 2 which, after the international financial crisis, led the Basel Committee to supplement the existing Accord, thus strengthening it.
Chapter 3 is dedicated to the in-depth analysis of the conception of the bank as a viable system enterprise, since it has the defining char- acteristics of this abstract category. The bank is emerging, in fact, as a viable system of order L, consisting of a governing body and an operat- ing structure, which operates within a financial system also composed of a governing body (ECB–Bank of Italy) and an operating structure in which the banking institutions represent a relevant component. The financial system exerts pressures and expectations, it imposes rules and constraints and it aims at survival through the acquisition of com- petitive advantages needed to create value. The financial system is, therefore, composed of a set of elements, institutions, markets, and companies in connection with each other and with the components of other systems. From the practicality of this group of elements, responsi- ble for the management of financial flows through the implementation of financial transactions, the financial system emerges, and is qualified as a supra-system of order L + l, compared to the banking viable sys- tem of order L, and is in a mediated way compared to other business organizations. The peculiarity of the banking business, and in partic- ular the relationship with the ECB–Bank of Italy supra-system, forces the governing body, in its action, to respect rules, constraints, pro- cedures, and comparisons with its own supervisory body. This makes binding its governance compared to other types of business. To all this, it must be added that the governing body not only acts on the oper- ational structure of the bank, but it also has the task of managing banking risks. In fact, in recent years the Italian banking system has been undergoing a relevant transformation: among the elements of great- est innovation in banking management, are the recent developments in the control and management of inherent risks in intermediation action.
Based on these consideration sin this chapter,we will focus attention not only on the typical risks of credit intermediary activities, but al soon those the viable system enterprise must deal with during its dynamic development. In the latter case, the reference is specifically directed to the unplanned and unknown risks. To protect themselves from unplanned risks, the company can transfer them outside the busi- ness – to insurance agencies, or by providing for specific funds internally to cover any possible losses. It can defend itself from the effects gener- ated by the risks of not knowing by preparing a defense in charge of the property, which is called the allocated capital.
Chapter 4 focuses on the analysis of intra-systemic and inter-systemic relationships, with particular reference to both the bank–company rela- tionship and its related risk/profit profile, and the bank–supervisory body relationship.
Chapter 5 deals with issues related to the analysis of intangibles of the company and their impact on the qualitative profile of their rating. The key questions are: What is the role of intangibles in the rating sys- tem? What qualitative information must the current models integrate? With the support of empirical research, this chapter attempts to iden- tify a possible rating model in which the weight of intangible assets is completed by an algorithm that takes into account the local contexts in which the company operates.
In the final chapter, the credit scenario is analyzed at European, national, regional, and provincial level. A sample survey has been car- ried out with the aim of examining in depth the main critical factors in the approach to the financial management of companies in the Italian province of Frosinone, and their relationship with the banking system with the entry into force of the Basel Accords.
All quotations from other publications have bee translated by this author, unless stated otherwise.