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

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.