The Department of Finance is spearheading efforts to make Dublin a financial services hub for non-bank lending across the eurozone.
If successful, the move could create thousands of well-paid front office jobs and play a key role in the development of the eurozone’s economy.
“Ireland is taking a lead roll in the area of non-bank financing and we have prioritised this issue as part of the Irish presidency,” said a Department of Finance spokesperson.
“We would of course see opportunities for Ireland to be in a position to benefit from increased financing and also there may be potential for Ireland to become a hub for such financing.
“The roll-out of non-bank financing is still in the early stages but the department will ensure that Ireland remains at the forefront of development.”
Since the collapse of the financial markets in 2008, the banking system has been struggling to return to profitability. Most banks across the eurozone are deleveraging, which means they are selling loanbooks and non-core assets to shrink their balance sheets.
In this contractionary environment, the flow of credit to the SME sector has been particularly constrained. SMEs create the vast bulk of employment across the eurozone.
In the US, 85% of corporate funding is done through thecapital markets and only 15% is bank funding. Across the eurozone, it is the opposite, with most corporates heavily reliant on bank funding.
The Government has used the EU presidency to look at a number of ways to develop a non-bank funding model. The idea would be to enable pension funds, mutual funds and insurers to invest in SMEs.
One of the ways of achieving this is through the securitisation market, which would see SME assets packaged together and sold on to investors. The Department of Finance hopes to make Dublin the hub of these activities.
The packaging and trading of these asset classes are very much up the value chain of the financial services sector and would create a huge amount of extra high-end employment in the IFSC.
Moreover, securitised investment vehicles would offer higher returns than low-yielding bonds, which would be an incentive for pension funds to invest.
In a paper prepared by the Department of Finance on non-bank funding and presented to eurozone finance ministers at the unofficial EcoFin meeting in Dublin in early April, a number of other ways of stoking investment in SMEs and infrastructure projects were looked at, including project bonds and debt instruments.
The unemployment problem has reached crisis levels in several eurozone countries, particularly the southern member states. Youth unemployment is running close to 50% in Spain.
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