Analysis of Solvency in Italian Local Governments: The Impact of Basel II francesca Manes Rossi Hot

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Uploaded by francesca Manes Rossi     Uploaded date: August 27, 2014    
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Publication date
August 01, 2014
Paper language
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.
Preferred Citation
Manes Rossi F. (2011) Analysis of solvency in Italian local Governments: the impact of Basel II su The IUP Journal of Financial Risk Management – The Icfai University Press, Vol. VIII, n.3, pp.17-42.
Keywords
local government; annual reporting; Basel II; rating; credit risk assessment; cash flow analysis
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Category
Financial accounting
Type of Paper
Published paper

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