Private Placement Debt Securities and the Wholesale Funding of the Banking System in Ireland

Dermot Coates and Jennifer Dooley
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Dermot Coates: Central Bank of Ireland
Jennifer Dooley: Central Bank of Ireland

No 04/EL/16, Economic Letters from Central Bank of Ireland

Abstract: This Letter examines the use of private placements as an alternative source of wholesale funding for Irish resident credit institutions over the decade up to end-2014. Private placements are a sub-set of total bond issuance and not all Irish-resident banks used these instruments. These debt securities (or bonds) are arranged privately between an issuer and an investor. There is a well-developed international market for the provision of wholesale funding to the banking system through private placements and this topic is addressed in the international literature. The objective of this research is to estimate, insofar as possible, the role played by private placements in the wholesale funding of the banking system in Ireland before the onset of the Financial Crisis and to outline how this has changed over the past decade. In order to do so, we have collected primary data from Irish-resident banks on an annual basis covering a 10-year period. Data was collected by means of a survey which enabled us to identify that cohort of banks that availed of this funding source. The results presented here suggest that approximately €121 billion of these bonds were outstanding by 2007 with both Irish domestic market and IFSC banks actively participating in this wholesale funding channel. The importance of these instruments as a source of wholesale funding has since declined significantly and had fallen to €29 billion by 2014. This was particularly the case for the Irish domestic market banks. Finally, we have used the emerging statistics on holdings of securities (SHS) to provide greater insight into who held the remaining bonds by 2014.

Date: 2016-08
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