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Italian financial system

THE BANKING SYSTEM

Banking system is essential for the proper functioning of the market economy. The banks in this system, have a dual function: on the one hand collect savings of economic agents, on the other grant loans to those who request them. Therefore play an intermediary role between those who offer money and someone who asks. Banks must have an economic benefit from their activity: their gain is in their interest rate charged on loans, compared to what they paid. It is said then that the price of intermediation of banks consists of the differential in interest rates to persons who are the borrowers, compared to those granted favors to the depositors.

The banking system has some problems. The first of these is the fact that banks receive essentially short-term debt that the investor pay off when he wants, and this causes the inability of the bank to meet cash requirements from consumers. A second problem concerns the majority shareholders of the banks which are often large companies, the possible failure prevents the bank to return the deposits to their customers. A final problem is related to the fact that banks investing in stocks, if prices collapsed banks will have a reduced quantity of money available.

These problems can cause reductions in the income of the investor with consequences for the entire economic system, which is why legislation is needed rigorous and thorough inspection. One answer is the anti-trust rules (limits on cross-shareholdings between companies and the purchase of bank and non-manufacturing companies as part of their businesses. Supervision on the banking system is instead entrusted to the Bank of Italy that: supervises the banking system transfer (less risk to the detriment of savers), and prohibits cartel agreements between banks to investors. There are also the ICRC and the Ministry of the Treasury.

Various types of lenders

With the banking reform of 1936 were eliminated mixed banks and was established a separation between commercial banks and special credit institutions. On this occasion it was established the Bank of Italy as the only issuing institution. This reform was intended to save the big banks, making them public. In this last period has been exceeded, the distinction between credit intermediation in the short and medium-long term: the new banking reform has introduced the principle of despecialization of lenders. This reform has implemented the EU Directive II, who wanted to encourage mergers between small banks and the privatization of public banks. On the line of this EU directive comes the universal bank and the banking group.

  • Universal Bank: institution that performs all the functions relating to the credit.
  • Banking group (or multi-functional group): concentration of more banking institutions.

THE FINANCIAL MARKET

In the financial market securities exchange, in this market the encounter between the supply and demand of stocks, bonds and government bonds. The financial market is divided into:

  • Money market: a set of trading capital in the short term (maximum 18 months)
  • The financial market: a set of trading of capital in medium and long term (over 18 months

The value of securities

  • Nominal value: what is printed on the title
  • Value of issue: what the broadcaster calls to subscribers of the title when it is placed on the market. The issue can be made:
    • equal: the emission value = nominal
    • below parity: emission value <rated value
    • at a premium: the emission value> parity value
  • Redemption value:
    • the amount that the issuer will pay to the owner of the title when the deadline will be

Performance of securities

The yield of the securities may have the following factors:

  • The interest the amount of which depends on a percentage rate which is determined at the time the certificate is issued and remains unchanged throughout the term of the loan (fixed rate) or may vary on the basis of some parameters ( variable rate);
  • The difference between the issue price of the stock and the value of the redemption
  • Dividends (shares): part of the profit of the issuer that is distributed to shareholders, the extent of which depends on the company's economic situation;

The shares

Are variable-income securities representing shares in the capital of the spa and sapa. Each company shall establish the minimum shareholding required to become members. The purchase of shares is the first form of financing (internal) and the shareholders, being the owner of a piece company suffer the equity changes in both positive and negative. The shares referred to are ordinary shares, which constitute a part of the capital and conferring the right to vote in members. There are also savings shares do not have voting rights and are bearer shares. The action to be 'two types of performance:

  • Dividend portion of the profits of the enterprise that is assigned to each action
  • Capital gain: when the investor sells his stock at a higher than that to which they were purchased.

The bonds

They are securities representing loans to medium and long term. These securities undertake to who made the vow to repay the capital of a future date and to pay regularly on the sum. (Index-linked bonds securities whose remuneration depends on an interest rate tied to the inflation. Convertible bonds allow the investor a capital gain with the consideration of a lower risk than direct investment in shares)

Government Bonds

They are also called securities representing the debt because they are issued by public authorities to cope with the extraordinary expenses or to make up for the deficit of the state. They can be short, medium and long term and can be purchased at par or below par. The main ones are:

  • BTP (BTP) duration : 3, 5, 10 or even 30 years. They give a fixed interest rate that will be higher when the life of the security is greater, shall be repaid in a single deadline and have a fixed semi-annual coupon;
  • BOT (Treasury bills) : 3,6,12 months duration; zero coupon. The yield on Treasury bills is the difference between the price at which they are subscribed and the value at which they are reimbursed;
  • CCT (Certified Treasury Credit) : in medium-long term. The coupons are indexed to the yield on Treasury bills but there is a bonus predetermined. Semi-annual coupon.

Institutional traders

The citizens and businesses do not have direct access to the financial market, they must utilize intermediaries, ie the securities brokerage firm (SIM). Among the economic entity and the SIM mediates the credit enterprise and creates a double intermediation between savers and the financial market. The SIM are supervised by the National Commission for Listed Companies Stock Exchange (CONSOB) and the Bank of Italy.

THE STOCK EXCHANGE

Stock exchange : market where you meet who wants to sell securities and who wants to buy them. At one time the sale took place at the premises of the Exchange and you could participate only appropriate intermediaries such agents of change. Today the values ​​are negotiated through an electronic market, based on sophisticated information technology and managed by operators that transmit purchase orders and sales.

In the stock market much of the trade equities, representing the capital of the companies. If the value of their stock rises, they will be found to have greater financial resources and will be willing to invest and expand production. Same thing can be said for bonds.

Private operators: “cassettisti” and speculators

  • Cassettisti: buy bonds to make them bear fruit and keep them in the drawer without selling them for a long time (they are often unrelated to the vicissitudes of the stock market)
  • Speculators are familiar with the fluctuations of securities prices and do purchase and sale transactions in short spans of time to get a profit from the difference between the purchase value and sale value. I'm bullish when, in anticipation of an appreciation of a title, buy it to resell it at a higher price; they are bearish when, in anticipation of a depreciation, sell bonds and then repurchase them gaining the difference between the sale price and the purchase price.

Stock exchange transactions

The main operations of buying and selling securities consist of spot contracts (in cash). In those contracts, delivery and payment of the price of securities traded in the course of a day occur after 3 haunting ( used by the “cassettisti”).

The stock indexes

Express the average performance of securities listed on any stock exchange. I'm a relationship between prices of all securities or a group of them at a time and their listing on an earlier date. The main Italian stock market indices are: historical MIB, MIB current MIBTEL MIB 30. While the major foreign indices are Dow Jones, Nikkei, Nasdaq, Standard & Poor's.

The new financial instruments

The new forms of financial investment are called “derivatives” because their value is linked to that of other financial instruments. The main ones are:

  • Futures contracts: contracts with performance and future conditions. A part gives financial assets and the other party must buy the conditions laid down at the time and decided;
  • Options: operator acquires the right to buy / sell a specified quantity of securities at a certain time and at a certain price, upon payment of a predetermined prize. The operator performing the contract, however, only if it is considered convenient, otherwise if not only lose a fixed amount.
  • Warrants: Special options that entitle the holder to purchase a number of shares at a predetermined price. They are usually signed with the notes, but can be separated.

Counter market and new market

  • Market restricted = unlisted securities are traded on the stock exchange. In this market, the contracts must always be ready and jitter may not exceed 20% from session to session;
  • New Market : recently established to facilitate the financing of small and medium-sized enterprises. The securities are traded in the electronic market by authorized intermediaries.

The INVESTMENT FUNDS AND PENSION FUNDS

  • Investment Funds : Institute of Financial Intermediation that, with funds raised by investors who subscribe for a share of the fund, have the purpose of investing in securities. The fund is a common fund and is run by a licensed company. The money is invested in a range of possibilities, said portfolio of securities, which aim to achieve a gain safer than that offered by equities. They can be opened (variable capital) or closed (creation of institutions that invest by buying shares of companies not listed on the official market).
  • Pension funds : funds established by agreements between unions or professional associations to ensure a certain category a supplementary pension.

FUND AND INSTITUTES OF INSURANCE

Investment company with variable capital

They have the purpose of investing in the financial market on a permanent basis the savings collected. The investor becomes a partner and shareholder may exercise the right to vote. Their activity is authorised by the Ministry of the Treasury and regulated by the CONSOB and the Bank of Italy.

Insurance companies

Activities through which to manage the risk that allows individuals to buy financial security against the currency risk relating to specific events. When it is taken out an insurance policy, you pay the company a fixed amount (premium) moves the financial risk from the individual to the insurance company. The company can absorb the risk since it has a capital distributed (dispersed ownership) among more subjects and the risk is then fragmented on a large number of people.

A little bit of italian history

The scandal of Banca di Roma

In 1888, the lack of cash, due to imprudent speculation, led to the brink of collapse banking institutions Turin, saved in extremis by government intervention. Glaring irregularities and outright falsifications, made with duplication of notes in circulation was also involved in the issuing banks, authorized by the State to print money. The most sensational case in this direction was the scandal of the Roman Bank (formerly Bank of the Papal States), which led to the fall of the Giolitti government at the end of 1893.

In the same year the credit securities collapsed, followed closely by the Bank generally. The consequence of this state of financial chaos was the adjustment of the emission system, started by Giovanni Giolitti with the establishment of the Bank of Italy (August 1893), who was given a prominent feature in the issue currency (until 1926 a limited faculty in this direction was also allowed to Banco di Napoli and Banco di Sicilia).

Since 1894 the Bank of Italy held the treasury department of the State throughout the Kingdom and between 1900 and 1930 took on the tasks of driving and control of the credit system typical of the central banks of the advanced countries, becoming an important element of stability of the national economy. On the model of banks “mixed” German, who exercised both the industrial and commercial credit is held work of coordination between industries and local banks, were also based in Milan, the Italian Commercial Bank (1894) and the Italian Credit ( 1895), In 1892, the Banca Romana, what in the past was the Bank of the Papal States, was one of six institutions authorized to issue notes to be legal tender on which was founded the Italian banking system (other banks of issue were: the National Bank of the Kingdom of 'Italy, the National Bank of Tuscany, the Banco di Napoli, Banco di Sicilia) was among the first to take advantage of the wave of speculation that swept Rome and other Italian cities between 1889 and 1893.

Because of the excessive credits granted to the construction of the capital paper circulation produced by the Bank exceeded the legal limit of 65 million. Much of the excess circulation (including 40 million in counterfeit notes issued in series double) was used for political loans to MPs and ministers, including Crispi and Giolitti.

The Commission of Inquiry appointed in 1889, when the first bank failures of that year left leaked the excess of circulation, drew attention to this and other irregularities (among others was found a cash shortfall amounting to 9,000,000 lire, covered by illegally issuing tickets). The results of the investigation, which Crispi and Giolitti had wanted to keep secret citing concern for any serious repercussions in the banking system were made public in December 1892. The subsequent administrative investigation conducted in January of 1893 led to the arrest of prominent personalities. It was concluded in July 1894 with the sensational acquittal of the accused, the judges do not involve leading figures in the political world, including Crispi, stated that during the investigation had been stolen important documents.

The Bank of Italy

The Bank of Italy, established in 1893, performs the functions of a central bank and single central bank, also is the technical body of banking supervision. According to the Banking Act of 1936, the Bank of Italy has become public Law Institute, which despite having a structure similar to a corporation, the shares can be owned only by credit institutions and the public security institutions and insurance. These bodies are the general meeting of participants, which performs tasks similar to those of shareholders, and appoints the Board of Governors is composed of the governor and twelve councilors, the latter are elected on a regional basis.

The Governor is the highest executive body of the Bank of Italy, who is appointed for life by the Board of Governors, the latter is also the organ that may be withdrawn from office. To make the appointment or dismissal of the governor must be approved by the Council of Ministers and a decree of the President of the Republic. This does not mean that the Governor and the Bank of Italy enjoy a large autonomy.

The governor, the general manager and the two deputy general managers form the Executive Board of the bank. The governor also supervising the administration of the bank is government adviser on credit and senior management of the Italian exchange rates (UIC). With the task of supervising the Bank of Italy shall exercise its powers in respect of the entire banking system It should check banks, banking groups and also financial intermediaries.

Among the documents of the Bank of Italy, the most important is the Annual Report, filed by May 31 meeting of the participants, and especially the Final of the governor, which details the activities and the policy of the central bank in previous year. The report contains data and analytical evaluations on the Italian and international.

The Bank of Italy now has the responsibility for the implementation of monetary and credit policy, that it enjoys autonomy from the government. To give greater autonomy to the central bank to implement monetary policy, since 1981 the “divorce” with the Treasury allows the Bank of Italy not to ensure the entire BOT offered in the case had not been fully underwritten by banks and private.

In 1992 she was given full authority to the central bank in setting the official discount rate. The “divorce” has become complete with extinction, in 1993, the Treasury account, the special line of credit that was created to meet temporary liquidity needs, it was transformed over time into a form of stable funding requirements of the Treasury. This situation was in contrast to the Maastricht Treaty, which provides for a ban on central banks providing overdraft central governments.

Banco Ambrosiano

The Banco Ambrosiano was one of the leading private banks Catholic Italian. Founded by Giuseppe Tovini, the bank was an instrument in the service of the Curia of Milan. Major figure in the “Ambrosiano affair”, Roberto Calvi entered as a simple clerk in the late 50's and the finding himself involved in the development of foreign affairs of the bank. Following the resignation of President Canesi in 1971, Calvi was appointed managing director. From here on He took technically (first) and formally (then) the control of the bank, becoming chairman of that until his death in 1982. The Bank will fail in the same year for a financial hole than 1200 billion lire.

The Institute for Works of Religion (IOR), the Vatican Bank, was the largest shareholder. It is assumed (processes are still under way), it shall be the direct controller so as to bring Roberto Calvi in ​​a process to declare that “the Banco Ambrosiano is no longer mine for a long time” (three years before his death in mysterious circumstances ). The head of the Institute for the Works of Religion (IOR) from 1971 to 1989, Paolo Marcinkus, was indicted in Italy in 1982 as responsible for the failure. According to the Lateran, Marcinkus, however, was allowed to retire in the Diocese of Chicago, having a valid passport Vatican.

Thanks to the participation of several banks was reborn as the Nuovo Banco Ambrosiano and after a merger with Banca Cattolica del Veneto was called Banco Ambrosiano Veneto. The institute had the head office in Milan (as well as after the creation of Banca Intesa) and headquartered in Vicenza. In 1998, Banco Ambrosiano Veneto joined first with Cariplo (creating the “Gruppo Intesa”) and then with the Italian Commercial Bank (renamed in “IntesaBCI Group”). In 2003 you get to the unification of the brand under the name of Banca Intesa.

Roberto Calvi

Roberto Calvi (13 April 1920 - London, 17 June 1982) was an Italian banker and financier. His career began in 1947, when he entered the Banco Ambrosiano, private bank closely linked to the IOR, as a simple clerk, except to succeed, in the space of thirty years, before reaching the position of general manager in 1971 and then as president in 1975, a position through which it was able to launch a series of financial speculation, carrying the Banco Ambrosiano in the international finance. Fundamental to this purpose, friendships with members of the secret Masonic lodge P2 (of which he later became part) and the relationships with members of the business world and the mafia.

He quickly became one of the most aggressive financiers, weaving a dense network of companies set up in tax havens with the IOR, the Vatican bank: acquired the Banca del Gottardo, a Swiss bank, a finance company founded in Luxembourg, the Banco Ambrosiano Holding, with Archbishop Paolo Marcinkus founded the Cisalpine Overseas, in the Bahamas, along with the computer technician Gerard Suisson (who died at age 40 in a Club Med in Corsica) Calvi devised a mechanism for the settlement of accounts between banks. The international obligations of fractional reserve were in this way only apply to the balance of credits between two banks, one of the two that has the positive balance (credit balance). Calvi became even more daring: he built shell companies in tax havens to increase the income of Banco Ambrosiano; then he went so far as to fund certain dictatorships in South America. In 1968 he met Michele Sindona with which he become business partner. In 1975 he introduced him to Licio Gelli; Sindona and Calvi joined the P2 lodge.

The crisis of the Banco Ambrosiano

The first crisis of the Bank dates back to 1977. At dawn on November 13, Milan woke up plastered with posters in which they denounced alleged irregularities in the Banco Ambrosiano. Architect of the gesture was Michele Sindona, who wanted revenge because Calvi had unsuccessfully asked for the money to “plug the holes” of its banks.

For a few months, starting from April 17, 1978, inspectors from the Bank of Italy's Banco Ambrosiano analyzed the situation and reported many irregularities, reported to Judge Emilio Alessandrini, who, however, was killed soon after by a group of terrorists from the extreme left belonging to the Front Line. It was January 29, 1979. On March 24, the governor of the Bank of Italy Paolo Baffi and the Head of the Supervisory Board Mario Sarcinelli, makers of the inspection, were accused by prosecutors Infelisi and Antonio Luciano Alibrandi of some irregularities and placed under house arrest, until they were completely acquitted in 1983, following the discovery of the absolute groundlessness of the charges against them. Following the Bank was faced with a first liquidity crisis, which resolved receiving funding from the BNL and ENI for about 150 million dollars, while a second liquidity crisis in 1980 was resolved thanks to a new loan of ENI $ 50 million. The “house of cards” of the Ambrosiano collapsed in 1981 with the discovery of the P2 lodge that protected him: Calvi, left without protection to deal with the scandal, sought the intervention of the Vatican and the IOR, but a little less than two months later, on May 21, was arrested for crimes exchange, tried and sentenced.

Rescue attempt

Pending the appeal process, Calvi was bailed out, returning to his former position. In an effort to raise funds for saving accounts, tightened its relations with Flavio Carboni, a Sardinian financier tied to political and criminals Romans as the Banda Magliana. Calvi and Carboni tried again the intervention of the IOR, which refused to provide aid in the face of numerous criminal acts coming to light.

The mystery of death

The bridge of the Friars Blacks in London is where Roberto Calvi was found hanged. The English courts dismissed the death of Calvi as suicide, as stated by a forensic examination, despite all the evidence prove the opposite. Six months later, the High Court quashed the judgment for formal and substantive and the judge who had issued was indicted for irregularities. In 1988 in Italy began a civil case which ruled that Roberto Calvi had been killed and imposed on insurance compensation of $ 3 million to the family.


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