The Use of OTC Derivatives by Italian Regions: For Hedging or Trading Purposes?

This paper discusses how the poor economic performance and the European fiscal constraints contributed to reducing the resources that the central state transfers to local administrations in Italy. The study also highlights how the Italian Ordinary Statute Regions' (OSRs) debt has just been doub...

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Bibliographic Details
Published in:The ICFAI journal of financial risk management 2017-03, Vol.14 (1), p.7
Main Authors: Fantini, Giulia, Oldani, Chiara
Format: Article
Language:English
Subjects:
Accounting
Accounting systems
Balance sheets
Derivatives
Economic crisis
Expenditures
Federalism
Hedging
Interest rate swaps
Public sector
Regions
Sovereign debt
Studies
Tax increases
Treasuries
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Summary:This paper discusses how the poor economic performance and the European fiscal constraints contributed to reducing the resources that the central state transfers to local administrations in Italy. The study also highlights how the Italian Ordinary Statute Regions' (OSRs) debt has just been doubled to the tune of euro57 tn between 2007 and 2014. Further, the study delineates how these regions have full legislative power over their debt and debt-related instruments and have extensively used OTC contracts to manage their growing liabilities with least regulation and control. Against this backdrop, the paper investigates whether OTC derivatives underwritten by these regions have been used as hedging tools to manage their debt exposure or just have been used as mere trading tools. However, the findings of the study confirm that most of the Italian OSRs have hedged their debt exposure with OTC derivative contracts.
ISSN:0972-916X