What ‘special purposes’ explain cross-border debt funding by banks? Evidence from Ireland

Brian Golden and Eduardo Maqui
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Brian Golden: Central Bank of Ireland
Eduardo Maqui: Central Bank of Ireland

No 12/RT/20, Research Technical Papers from Central Bank of Ireland

Abstract: The factors driving debt issuance by banks are known to relate to their risk profiles. This appears to be particularly true when it comes to cross-border issuance and issuing debt through the special purpose entity (SPE) channel. Both of these areas are relatively unexplored, however, particularly the latter. We examine a key global channel, namely international banks issuing debt through Irish-resident SPEs for determinants of both the decision to issue debt and volumes issued. At the bank-level, we find that debt issuance through SPEs is consistently explained by larger bank size and higher loan loss provisioning, and, for banks from advanced economies, higher regulatory capital. At the country-level, we find spillover effects from higher levels of both capital flow and macro-prudential regulation in the bank’s home country and, for banks from advanced economies, higher domestic corporate taxation was also an important determinant. Therefore, a cross-border SPE could act as a risk indicator for financial stability analysis and regulatory monitoring.

Keywords: International banking; cross-border debt funding; special purpose entities (SPEs); Irish non-bank financial sector. (search for similar items in EconPapers)
JEL-codes: G01 G15 G21 (search for similar items in EconPapers)
Date: 2020-12
New Economics Papers: this item is included in nep-ban
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