Davide is Lecturer in Business Economics at The University of Edinburgh Business School and a member of the Credit Research Centre. He is also Research Fellow of the Institute for Competitiveness (I-Com). He has previously gained extensive professional experience in risk management practices through his work as a financial consultant for top European banks in Italy, Spain and UK.
The research presents an innovative study related to the analysis of the determinants of risk of failure for Italian Cooperative banks (CB). The investigation assesses the dynamic influence of the economic environment on the occurrence of financial distress in a sample of Italian Cooperative banks. Using an unbalanced panel model, the study suggests that when small rural banks are exposed to local shocks, the occurrence of failure is more likely. The issue is relevant for the CB socio-economic role in Italian rural and local markets and for the lack of research on the subject. Thus, the analysis fills the void through the development of a default predictive model using the panel data technique.
The study shows that the default of Italian CB is statistically related to macroeconomic variables and to bank-level fundamentals. The focus is on Italian cooperative banks since this case is particularly interesting to analyse the interconnection between small banks and the local economic environment. The banks are followed in the period 1999-2006. Bank failure is associated with public intervention (Extraordinary Administration and the Liquidation Procedure). The model predicts the likelihood that a bank, currently considered safe and sound, enters default in the following 12-24 months.
The contribution of the study is three-fold. First, the research provides a comprehensive analysis of the main determinants of risk for Italian Cooperative banks. Second, it gives new fundamental evidence of the causes of bank failures and it allows to formulate related policies in order to head off the potential financial crises or limit the associated direct and indirect costs. Third, from a microprudential regulation perspective, using a wider set of variables eventually lessens the dependency of off-site monitoring on accounting data, thus improving the supervisory toolbox to anticipate banking crises.