New Research Investigates Role Played By Private Placements in Banking System Over Last Decade

• Private placement activity peaked in 2007 at approximately €121 billion of total balance sheet liabilities
• Importance of private placement activity fell to €29 billion in 2014
• By 2014 IFSC banks had more private placement activity on balance sheets than domestic banks

The Central Bank has published a new Economic Letter by Dermot Coates and Jennifer Dooley, examining the decline of private placement debt securities as an alternative source of wholesale funding for Irish resident credit institutions.  Private placements are a sub-set of total bond issuance. 

The Economic Letter aims to estimate 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 in the decade to the end of 2014.  It finds approximately €121 billion of these bonds were outstanding in 2007, with Irish domestic market and IFSC banks participating.  However, by end-2014, the importance of private placements had diminished to €29 billion.  In particular there was a decline in holdings by Irish domestic banks by the end of the period surveyed.

The Letter also finds up to 62 per cent of these instruments were held by other financial sector entities at end-2014, with investment funds and money market funds the prevalent holders.   German and French residents are estimated to be the largest euro area holders, but non-euro area holders held more than a quarter of the total. 

Notes: 

A private placement allows debt to be placed directly with investors without recourse to the public markets.

The views expressed in this paper are those of the authors only, and do not necessarily reflect the views of the Central Bank of Ireland.