The measurement and regulation of shadow banking in Ireland

Abstract

PurposeThe purpose of this paper is to study financial vehicle corporations (FVCs) and other special purpose vehicles (SPVs) in Ireland.Design/methodology/approachThe paper is based on a database of FVCs that are a central part of the shadow banking sector in Ireland. The database is derived from a European Central Bank (ECB) list of securities and from filings in Company Registration Office, Dublin.FindingsTax concessions are very valuable and has resulted in zero or close-to-zero effective tax rates. Although described as “bankruptcy remote”, FVCs/ SPVs in Ireland are associated with several banks that failed. Central Bank data are inconsistent with revenue data and have resulted in regulatory gaps. The main economic benefit to Ireland consists of payments to certain service providers.Research limitations/implicationsA complete population of FVCs/SPVs has not been used. Ownership of FVCs/SPVs has not been identified with consequent implications for identifying risk to the sponsoring firm or guarantor.Practical implicationsThe study indicates data deficiencies in Central Bank data, with consequent implications for regulation and measuring the size of the shadow banking sector, and failure of FVCs/SPVs described as bankruptcy remote.Social implicationsThe shadow banking sector has been a key source of instability and risk transference in the recent past. Research and understanding is vital to prevent a future occurrence.Originality/valueThere are no publicly available databases of individual FVCs/SPVs in Ireland. Hence, research on granular data is limited. The study develops a database derived from lists of securities published by the ECB. The study also relies on a database derived from company house records.