Ireland named in top 5 countries for shadow banking

Some $2.2 trillion in assets is held here...

Ireland has the fourth-largest shadow banking industry in the world, housing nonbanking financial assets that amount to nearly eight times the size of the Irish economy.

Some $2.2 trillion (€2.02tn) is held in funds, special-purpose vehicles and other financial entities in Dublin's IFSC, The Irish Times reports.

The sixth annual shadow banking report from the Financial Stability Board (FSB), reflecting data up to the end of 2015, places Ireland just behind the US, Cayman Islands and Japan.

China, which ranked third with Ireland in the last report, didn't file data on time to be included, while Luxembourg has not yet taken part in the annual survey.

The FSB has been tasked by the G20 since 2011 of keeping track on the expansion of financial activities outside of mainstream banks, putting a spotlight on an area that has been blamed in part for the 2008 financial crisis.

Despite the name, 'shadow banking' is a term that has been used for the past decade to describe a broad church of financial dealings outside traditional banking houses, including the sale of investment products, art auctions and even crowdfunding.

FSB chair Mark Carney said:

"Market-based finance provides important diversification of the funding sources which support the real economy. The enhanced and coordinated system-wide monitoring by authorities continues to improve our understanding of non-bank financial activities and risks to the financial system.

"This helps to inform our judgement on appropriate policy responses as we transform shadow banking into resilient market-based finance”.

The board states:

"Non-bank financing provides a valuable alternative to bank funding and helps support real economic activity. It is also a welcome source of diversification of credit supply from the banking system, and provides healthy competition for banks.

"However, if non-bank financing is involved in bank-like activities, transforming maturity/liquidity and creating leverage like banks, it can become a source of systemic risk, both directly and through its interconnectedness with the banking system."

Some 46% of Irish nonbank financial assets consist of investment funds administered in Dublin and listed on the Irish Stock Exchange (ISE). Another 12% is made up of money-market funds.

Globally, the shadow banking sector was worth $34 trillion in 2015, up 3.2% on the previous year.

“This is the equivalent of 60% of gross domestic product of these 27 jurisdictions and 13% of financial assets,” the report noted.