Ireland’s ‘shadow banking’ sector grows to €3.45 trillion

Central Bank of Ireland HQ

Ireland’s non-bank financial intermediaries (NBFI) sector — often called “shadow banking” — grew to €3.45 trillion by the end of 2020, making it the fifth largest in the world after United States (€15.43 trillion), China (€7.59 trillion), Cayman Islands (€5.76 trillion) and Luxembourg (€3.94 trillion).

Ireland’s €3.45 trillion NBFI figure is based on a narrow definition of non-bank financial intermediaries activity used by the Basel-based Financial Stability Board (FSB).

“Over the past decade, Ireland’s narrow measure almost tripled in size,” said a report by the Central Bank of Ireland.

“The sector reached €3,449 billion by the end of 2020, making it the fifth largest in the world.”

The report explained: “Over the past decade, Ireland’s NBFI sector (as defined by the FSB), which in 2020 accounted for around 60% of Ireland’s resident non-bank sector, has undergone a remarkable expansion.

“The sector almost tripled from €1,240bn at end-2010 to €3,449bn at end-2020.

“This growth is primarily due to an increase in the investment fund industry, which saw its total assets increase by €1,753bn to €2,092bn over the last ten years.

“While this partly reflects asset revaluations common to other jurisdictions, investor inflows into an expanding Irish-resident investment fund sector have been consistently strong relative to other countries reflecting Ireland’s role as a host for international asset management activities.”

The €3.45 trillion is largely comprised of investment funds (€2.09 trillion) and money market funds (€630 billion).

The rest Ireland’s NBFI sector is mostly made up of entities engaged in securitisation (€443 billion) and non-securitisation special purpose entities providing credit to companies and individuals (€237 billion).

“The NBFI measure under the FSB Framework excludes a substantial portion of Ireland’s non-bank financial sector,” said the Central Bank of Ireland.

“It excludes insurance corporations (those not engaging significantly in credit insurance or credit derivative activity), pension funds, financial auxiliaries and other financial intermediaries (OFIs) which do not have financing structures or engage in activities which may pose risks to financial stability.

“The largest categories excluded are equity funds (€1,006bn), captive financial institutions (€517bn), insurance corporations (€329bn).”