NOTES TO THE RELEASE
FINANCIAL ACCOUNTS
 
1. Introduction
In September 2000 the process of revising Italy's financial accounts
in the light of the new European System of Accounts (ESA95) was
completed with the production of continuous series dating back to
1995.
The financial accounts published by the Bank of Italy from 1999
onwards had already incorporated almost all the ESA95 classification
of institutional units and financial instruments (see the item
"Attivitą e passivitą del Paese" in the "Note metodologiche" published
in the appendix to the Relazione sull'anno 1998). The most important
changes arose from the inclusion in the Non-financial corporations
sector of partnerships with less than 20 employees and sole
proprietorships with between 5 and 20 employees, which had previously
been included in the household sector.
The additional innovations that have now been introduced mainly
concern the methods of valuing stocks of financial assets and
liabilities and the manner of recording transactions. In the past
stocks were mostly included at face value, whereas listed financial
instruments and derivatives are now stated at market value at the end
of the reference period; in all other cases the best available
approximation of market value is used.  As regards the manner of
recording transactions, recognition on an accruals basis has replaced
that on a cash basis. In order to ensure the internal consistency of
the system and, in particular, the theoretical equality of the
balances of the capital account and the financial account, ESA95
provides for transactions carried out by institutional units to be
recorded in all the accounts at the same time, that in which the
economic value is created, transformed or eliminated.
The opportunity offered by the adoption of the new accounting rules
was taken to carry out a general revision of the sources and
methodologies used.  The most significant innovations concern the
estimation of the value of shares and other equity and trade credits
and the statistics on the deposits and loans of Monetary financial
institutions and mutual fund shares (see the item "Attivitą e
passivitą del Paese" in the "Note metodologiche" published in the
appendix to the Relazione sull'anno 2000).
As of January 2002, "Shares and other equity" includes a new
sub-item showing listed shares issued by residents. The data are
available only for stocks.
In September 2005 some of the sources used for the production of the
time-series for the sub-sectors Central government, Local government
and Social security funds have changed. The opportunity for this
revision has been the transmission to Eurostat of financial assets
data for the General government, in the context of the Excessive
deficit procedure notification. As of the present Supplement, net
acquisitions of loans, securities, shares and mutual funds' shares of
the aforementioned sub-sectors are computed using information recently
disclosed by the Ministry of Economy and Finance. The impact of these
revisions is modest.  This revision process has not been completed
yet.  For the time being, the available information do not comprise
the breakdown of the previous sources, as to the classification of
financial instruments and the identification of counterpart sectors.
As a consequence, future revisions of stock data will follow.
2. Valuation at market prices
The adoption of valuation at market prices made it necessary to revise
the values attributed to short and medium and long-term securities and
unlisted shares issued by residents, which in the past were recorded
respectively at face value and book value. Derivative instruments,
included in the financial accounts under ESA95, are also stated at
their market value.
For the main types of government securities the ex coupon market value
has been obtained by supplementing the information on the face value
of single issues with daily observations of the prices of the
securities traded on the electronic bond and government securities
market (MOT).
Shares and other equity of unlisted companies have been valued with
reference to the average stock exchange prices of listed companies
belonging to the same sector by applying ratios of market
capitalization to shareholders' equity.  In order to remedy the
limited representativeness of listed companies with respect to the
universe of Italian companies, market valuation has been applied only
to companies of a similar size to that of the listed companies and in
branches with a sufficient number of such companies. Other companies
were all valued on the basis of their shareholders' equity at book
value, as in the past.
In accordance
with the recommendations of ESA95, the method of valuing the stocks of
shares issued by unlisted banks and insurance companies has also been
modified. In particular, the revaluation coefficients used to estimate
the market value of unlisted securities are now obtained for each
sector as the ratio of the market capitalization of the listed
companies in the same sector to their shareholders' equity instead of
to their issued share capital as in the past. Since the banking and
insurance sectors are relatively homogenous and listed companies in
these sectors make up the bulk of the two markets, in this case market
valuation was applied to all the companies in the two sectors.  Mutual
banks are an exception in this respect and are valued using the equity
method.
On the assets side, the estimation of the stocks of shares and other
equity issued by residents and held by General government,
Non-financial companies, Monetary financial institutions and Other
financial intermediaries was revised in line with the new methods
adopted for liabilities
3.  The recording of transactions on an accruals basis
The introduction of the accruals principle in the financial accounts,
which were previously prepared almost exclusively on a cash basis,
affected interest payments, which are now accounted for at the time
they mature as being reinvested in the instruments that generated
them, and required entries in the subitem "Other" of the item "Other
accounts receivable/payable", which records the remaining differences
between flows on an accruals basis and those on a cash basis,
consisting mainly of taxes and social security contributions and
social benefits.
In order to calculate accrued interest, recourse is made to the debtor
principle, whereby the relevant yield is that at issue. Accrued
interest is estimated for bank deposits and loans, government
securities and securities issued by other domestic sectors and
non-residents. Accordingly the amounts shown for these items include
the interest accrued but not paid at the end of the reference period.
For securities, both maturing coupons and issue discounts are recorded
on an accrual basis.
In the case of government securities the calculation of the items
linking interest on a cash and an accruals basis was carried out in
collaboration with Istat, for both annual and quarterly figures, using
data supplied by the Ministry of the Economy and Finance; it is
consistent with the recording of interest on an accruals basis in the
new General government non-financial accounts based on ESA95 prepared
by Istat.
The amounts for the item "Other accounts receivable/payable - Other"
and the related counterparties are provided by Istat exclusively on
an annual basis.  Quarterly estimates are not currently available.
Figures are therefore shown only in the annual tables, while the
quarterly tables are incomplete.  Consequently, the total assets and
the total liabilities of the institutional sectors on a quarterly
basis differ from those shown in the annual tables and the sum of the
quarterly financial balances of a given year does not coincide with
the annual financial balance.
4. The estimation of shares and other equity.
The total of shares and other equity in the assets and liabilities of
non-financial corporations and non-bank financial intermediaries is
calculated on the basis of company accounts data for the entire
universe of companies, collected and processed by Cerved. Since these
data become available with a lag of 18 months, estimates are used
initially. The statistics published are revised when the Cerved data
become available. Caution is therefore recommended in using the data
for the current year and the preceding year.
For the component consisting of listed shares, the source for the
total stocks and the detail by issuing sector is Borsa Italiana S.p.A.
and the data refer to the market capitalization of the Stock Exchange,
the Nuovo Mercato and the Mercato Ristretto. The amounts held by the
different sectors are estimated to a varying extent. In general, the
series published are likely to be revised in the future, possibly
significantly.
The estimated component is very small or entirely absent for banks,
investment funds and investment firms, since the data are derived from
supervisory statistical reports, and for the central bank, insurance
undertakings and social security funds, since the data are obtained
from their balance sheets.
In other cases the sources used provide only the percentage holdings
of listed companies' capital; the market value of the shares held is
obtained by applying these percentages to the companies' market
capitalization published by Datastream. In particular, for shares
held by banking foundations and local authorities, the elementary
data come from Consob. For central government, the basic information
is provided by the Ministry of the Economy and Finance and refer only
to direct holdings. Consequently, all the listed shares held via
state holding companies (e.g. IRI) are excluded and attributed to the
public enterprises in question and included among the assets of
non-financial corporations.
Among the estimates to be interpreted with the greatest caution are
those for listed shares held by non-financial corporations and
quasi-corporations. They are based on data obtained from balance
sheets in the Cebi-Gruppi and Cerved archives and supplemented by
extrapolations.
The series for the household sector are obtained as a residual, by
subtracting the quantities attributed to all the other sectors from
the total quantity of shares issued by listed companies. The listed
shares held by households include shares acquired directly and those
acquired via portfolio management schemes.
5. The statistics on bank deposits and loans
As of this Supplement the information on bank deposits and loans
refers to the universe of resident banks from the month of January
2000 onwards. Accordingly, from that date onwards the procedure used
to estimate the data for the universe has been dropped. It is still
used to extrapolate the sample data on bank deposits and loans for the
periods before 2000 (see "I conti finanziari dell'Italia", Tematiche
istituzionali, Banca d'Italia, April 2002).
6. Trade credits
The observation of trade credits, which was previously restricted to
business with non-residents, has been extended to credits within the
Non-financial corporations sector and to between such companies and
producer households.  The calculation of the aggregates, based on data
in Cerved's company accounts archive, does not consider non-financial
quasi-corporations. The present estimates may be revised in the future
to take account of additional sources of data, such as the results of
the Bank of Italy's sample survey of firms.
7. The other revisions
In calculating the net issues of Italian Treasury bills, gross issues
are now included at their allotment prices instead of at their face
value as in the past.
As of Supplement no. 59 of 4 November 2002, the securities stated
among MFIs' liabilities include bonds issued as subordinated
liabilities.
The stocks of Italian mutual fund shares, which were previously
attributed in full to the household sector after deducting the part
held by non-residents, are now allocated between the different sectors
on the basis of information provided by fund management companies for
supervisory purposes.
Net issues of mutual fund shares now also include the investment
income earned, which is considered to be attributed to the
shareholders and reinvested.
Money market funds have been separated from the other mutual funds and
included in the Monetary financial institutions sector, as prescribed
by ESA95.
As of Supplement no. 42 of 5 August 2002, the accounting treatment of
securitizations undertaken by General government has been revised in
the light of Eurostat Decision no. 80/2002 of 3 July 2002. In
particular, receipts deriving from the assignment of future revenues
have been reclassified as loans, with a consequent impact on net
borrowing. Analogously, receipts deriving from the sale in 2001 of
real estate belonging to the State and other public entities have
been reclassified as loans because the initial amount paid by the
special purpose vehicle was less than 85% of the total value of the
buildings in question.
As a consequence of the bond conversion carried out by the Bank of
Italy and the Treasury on 31 December 2002, the stock of bonds in
central government liabilities decreased by about 21.5 billion euros.
In accordance with Eurostat's decision of 23 October 2002, the
conversion had no effect on the flow data.
In accordance with the Eurostat decision of 23 May 2005, the central
government liabilities consisting of medium and long-term securities
and loans include the debt issued by Infrastrutture S.p.A. for the
financing of high-speed railway construction works.
Flow data for the fourth quarter of 2003 for the General government
and for Other financial intermediaries are now computed net of the
change in volume due to the reclassification of Cassa Depositi e
Prestiti, previously recorded in the General government sector. As of
30 September 2006, stock data on deposits and loans of Other financial
intermediaries and Monetary financial institutions are affected by the
change in sector classification of Cassa Depositi e Prestiti, included
in the List of Monetary financial institutions.
Up to the first quarter of 2007 Poste Italiane's fund-raising by means
of current account deposits with the obligation to invest the proceeds
with the Ministry for the Economy and Finance was considered as a
direct liability of the Ministry towards the depositors. The Budget
Law for 2007 (paragraph 1097 et seq.) eliminated the obligation to
deposit these current accounts with the State Treasury.  They have
therefore been reclassified as liabilities of Poste Italiane towards
the depositors. The legislative provision produced visible effects,
from the second quarter of 2007 onwards, on the liabilities in the
form of deposits and on the assets in the form of securities of
non-financial corporations, the institutional sector to which Poste
Italiane belongs.
More detailed information on the improvements in the estimates of some
components of the wealth of households (loans to cooperatives, equity
in non-financial quasi-corporations and trade credits) can be found in
the Household Wealth in Italy supplement to the Statistical Bulletin.
For further information, see the item "Attivita' e passivita'
finanziarie dell'Italia" in the Methodological Notes section of the
Bank of Italy's Relazione Annuale - Appendice.
 
 
 
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