Thursday 14 December 2017

Ireland hosts $2.2 trillion of shadow banking assets, says stability report

Shadow banking in Ireland is concentrated in the IFSC
Shadow banking in Ireland is concentrated in the IFSC
Donal O'Donovan

Donal O'Donovan

Ireland is home to the world's fourth-biggest shadow banking sector, hosting around $2.2 trillion of financial assets held by funds, special-purpose companies and so-called securitisation structures.

Shadow banking refers to large-scale financial institutions and money managers other than traditional banks.

Growth in global bond, property and money market funds continues to swell the world's "shadow banking" sector, according to a report by the global Financial Stability Board.

The sector is responsible for providing an increasingly large share of global credit.

In Ireland it is concentrated in the IFSC, where funds ultimately owned and often controlled elsewhere are administered and managed, but, according to separate research by the Central Bank of Ireland, a significant level of Irish shadow banking reflects treasury management functions within multinational corporations based here.

The US, followed by the Cayman Island and then Japan have the greatest concentrations of shadow banking assets, according to the report - although Luxembourg, a major financial administration centre, is not included in the data.

In the eurozone, including Ireland, the funds industry is increasingly plugging gaps that were once monopolised by banks - including lending to property developers, car buyers and small firms.

Almost half of the shadow banking assets housed here in Ireland are held in investment funds administered here. A further 20pc is in special-purpose vehicles - legal structures used in securitisation - which is the bundling up of packaging of loans and bonds.

Significant volumes of assets are held by multinationals but that still leaves as much as €471bn that the FSB report counts as "other" shadow-banking assets not subject to regulatory reporting - making them difficult to track.

The Central Bank and Central Statistics Office (CSO) are looking to create a comprehensive register of all financial entities here, similar to the approach taken by the Bank of England.

Globally, the FSB, which coordinates financial regulation for the G20 group of the world's biggest economies, said its "narrow" measure of shadow banking activities that could pose a threat to stability, rose 3.2pc to $34.2 trillion in 2015, the latest year for which figures have been collated.

Some of the growth in the euroarea came as credit was reduced by shrinking banks after the crash. The total value of shadow banking assets is up from 60pc of the overall economic output of countries monitored in 2011, to 69pc in 2015, outpacing growth generally. In Ireland, however, it is a multiple of the size of the economy. (Additional reporting Reuters)

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