Monday 28 May 2018

Irish shadow banking dwarfs more traditional sectors

Ireland ranks behind only Luxembourg, pictured, and the Cayman Islands
Ireland ranks behind only Luxembourg, pictured, and the Cayman Islands
Donal O'Donovan

Donal O'Donovan

Ireland is home to the world's third biggest shadow banking sector, with assets held here worth 13 times the size of the real economy, according to a report by the global Financial Stability Board (FSB).

After Luxembourg and the Cayman Islands, Ireland is proportionately the biggest centre in the world for financial assets that don't belong to banks or insurance companies, the report said. Ireland is one of a handful of countries where the value of assets held by the shadow banking sector is bigger than the value of banking or insurance assets.

Here, the non-bank funds are owned abroad mostly.

Growth in global bond, real estate and money market funds has continued to swell the world's shadow banking sector, the FSB, a watchdog that co-ordinates financial regulation for the G20 club of the big economies, said yesterday.

The Board said its "narrow" measure of shadow banking activities, which could potentially pose a threat to global financial stability, rose 7.6pc to $45.2trn in 2016, the latest year for which figures have been collated.

The term shadow banking refers to large scale financial institutions other than traditional banks including hedge funds, money market funds and offshore trusts.

In Ireland trillions of euro of financial assets are held by funds, special-purpose companies and so called securitisation structures, many managed through the IFSC.

The Central Bank has said previously that a significant level of Irish shadow banking also reflects treasury management functions within multinational corporations based here.

The sector is responsible for providing an increasingly large share of global credit but falls outside many of the established regulatory controls that apply to banks and insurance companies.

Shadow banking assets represent 13pc of the total financial system across the 29 countries surveyed.

Data from China and Luxembourg were included in the measure for the first time.

The sector can be treated with suspicion by regulators but has grown since the financial crisis as banks failed to meet the demand for credit.

Irish Independent

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