Dáil Éireann Debate, Tuesday - 21 May 2013
115. Deputy Mick Wallace asked the Minister for Finance his views on the shadow banking sector here; if he will outline the benefits of this sector to the economy; and if he will make a statement on the matter. [23979/13]
View answerShadow banking embraces a disparate range of entities and activities which support investment and capital-raising. It can include Money Market Funds or other “deposit taking” investment products, Special Purpose Vehicles which perform liquidity or maturity transformation, Exchange Traded Funds and other funds which provide credit, firms which provide credit guarantees, insurance/reinsurance firms which issue or insure credit. Shadow banking typically has the following characteristics: maturity or liquidity transformation across the balance sheet - where the sources of funding are of shorter maturity or the assets are inherently illiquid; credit creation funded by leverage - which boosts certain measures of the money supply.
Shadow Banking, if well regulated, can perform important functions in the financial system and parts of the Shadow Banking system can contribute positively to the flow of credit and liquidity and help to promote economic growth.
In general, regulatory proposals on Shadow Banking seek to appropriately reflect a balance between the need for better risk management and enhanced transparency and stronger financial stability, and the need for increased and more diversified financing to the economy.
Shadow banking activities make use of various services located in Ireland such as legal advice, tax advice, accountancy advice, asset servicing, subscriptions and redemptions, valuations and listing. Most of these are high value added activities to the Irish economy through income tax receipts.
The Commission will in summer 2013, as a follow up to their Green Paper of March 2012, and the international work coordinated by the Financial Stability Board, address the systemic problems related to shadow banking. My Department is awaiting the publication of the Commission’s proposals and will engage fully with efforts to improve regulation of shadow banking.
