Securitisation special purpose entities' use of derivatives: New evidence from Ireland

Paweł Fiedor () and Neill Killeen

No 3/FS/19, Financial Stability Notes from Central Bank of Ireland

Abstract: Securitisation special purpose entities (SPEs) are a key component of the market-based finance sector domiciled in Ireland with approximately e390 billion in assets in Q3 2017, growing to over e430 billion in Q3 2018. In this Note, we document the different business models of these vehicles, with a specific focus on their derivative activities. These entities are set up as off-balance sheet vehicles used in the securitisation process. While they are domiciled in Ireland, they are strongly interconnected with the international financial system through their sponsor and funding linkages. These interconnections, in particular with banks, warrant financial stability monitoring of these vehicles’ derivative activities owing to their potential to amplify stress.We show that SPEs predominately use interest rate derivatives over the period 2015–2017. They are also active counterparties in commodity, credit and equity derivatives, but to a much lesser degree. Our findings provide new insights on the extent of the bank sponsor linkages and aid a mapping of the exposures between the banking and non-bank financial system in derivative markets.

Date: 2019-04
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