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Article
Publication date: 10 September 2020

Chiara Oldani and Giulia Fantini

This study contributes to the literature on local administrations' debt and attempts to answer the following research questions: (1) What effects do swaps produce on regions'…

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Abstract

Purpose

This study contributes to the literature on local administrations' debt and attempts to answer the following research questions: (1) What effects do swaps produce on regions' debt? (2) Have swaps been used to finance discretionary debt?

Design/methodology/approach

The paper investigates the debt burden as influenced by economic, financial and political variables and forces with panel data techniques, and tests whether swaps have been used to financing debt due to unfunded expenditures.

Findings

Panel data results of 15 Italian regions over the 2007–2014 period shows that regions with higher debt exhibited a higher interest rate exposure and have employed derivatives hoping to counterbalance the reduced resources received from the central state, in line with other European countries' experience (i.e. France and Greece).

Research limitations/implications

The scarcity of official data and information on swaps has limited the empirical investigations in the literature but did not reduce the losses of local administrations.

Originality/value

This study creates the first database on swaps purchased by Italian regions to investigate their impact on their debt. Results show that highly indebted regions with reduced funds from the central state and diminished local resources are more likely to use swaps to fund their debt. Italian regions heavily depended on long-term debt to finance their non-healthcare services, rather than current revenues; swaps have been used to finance discretionary (non-healthcare) debt.

Details

Journal of Public Budgeting, Accounting & Financial Management, vol. 32 no. 4
Type: Research Article
ISSN: 1096-3367

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Article
Publication date: 14 May 2018

Chiara Oldani

The purpose of this paper is to underline the (hidden) risks posed after the crisis by the exemption of non-financial operators, especially sovereigns, from the regulatory reforms…

298

Abstract

Purpose

The purpose of this paper is to underline the (hidden) risks posed after the crisis by the exemption of non-financial operators, especially sovereigns, from the regulatory reforms of over the counter (OTC) derivatives undertaken by G20 countries in the absence of accounting data on trading.

Design/methodology/approach

Recent financial regulatory improvements are reported to underline that the trading of OTC derivatives by sovereigns and local administrations does not take place under the new regulatory umbrella, because of the relative size of the institution, the lack of incentives to adhere to Centralized Counterparty Systems (CCPs) and most of all, the absence of proper accounting rules. Sovereigns and local administrations have the potential to undermine global financial stability.

Findings

The limited availability of accounting data on derivatives’ use by public administrations constitutes a barrier towards a full comprehension of risks involved. Sovereigns should be compelled to adhere to the CCPs and the collateralized system of trading; the short-term costs of adhering to CCPs are worth $20bn.

Research limitations/implications

The new regulatory system failed to explicitly consider the trading of sovereigns and this can reduce the effectiveness of regulation itself and can have negative impact on financial stability; in fact, omitting sovereigns from these regulations represent a significant risk oversight because they are systemically important players, although with a special political power.

Originality/value

Despite progress made in improving the transparency and resilience of OTC derivative markets after the subprime crisis, sovereigns and public administrations are exempted from the new regulation, posing severe risks to financial stability.

Details

Journal of Financial Regulation and Compliance, vol. 26 no. 2
Type: Research Article
ISSN: 1358-1988

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