Sir, – The article “Shadow banking poses clear threat to financial stability” (Business, Opinion, July 17th) does little to advance any understanding of the critical and increasingly important role of a wide range of entities (including, but not limited to investment funds, pension funds, insurers, asset management companies, securities firms and venture capitalists) have in providing funding to companies, projects and governments.
This is even more surprising at a time when the European Commission, the Eurogroup, national governments, policy makers and regulators around the world have acknowledged that the scope and scale of the funding needed for essential transitions (like those of climate and digitalisation), as well as retirement and aged-care provision, can only be achieved by investing activity which is beyond that which banks can or are willing to provide via their lending. In some respects, the post-financial crisis global regulatory framework for banks has disincentivised them from lending and providing liquidity.
As a result, alternatives to bank financing have emerged to ensure more diverse sources and wider availability of capital for businesses and projects.
The assertion in the article “that regulators have no real clarity about the strategies and assumptions that have been made” is incorrect.
Speaking for investment funds, regular and granular data is provided by entities that are regulated and closely supervised at both national and EU level.
Additionally, many funds regulated by, for example, the Central Bank of Ireland are subject to a detailed and robust authorisation process.
A total of 41 percent of the financial assets held by households across Europe sit on deposit (47 per cent in Ireland) – this will not achieve the longer-term financial goals of citizens, communities or governments. There are inherent risks in seeking higher returns which is why regulated, diversified and professionally managed funds play an important role, especially in a post-financial crisis environment where regulation and supervisory scrutiny have been substantially strengthened.
The recent passage of legislation in the Oireachtas enabling auto-enrolment for pensions means that a greater number of Irish people will become investors. In fact, we are all investors in one form or another. How we speak about investing needs to evolve as this activity is an important contributor to citizens’ long-term financial wellbeing and resilience. This activity also meaningfully contributes to long-term economic growth and job creation (over 19,000 people in the case of Ireland’s funds and asset management industry).
Market-based financing of the economy, provided by many different entities other than banks, is not in the shadows and is increasingly being looked to for solutions which support a changing social contract. That this is happening in a complex ecosystem which requires better public understanding and debate – one which we are happy to contribute to and which we hope will be advanced through the Department of Finance’s important work on a National Financial Literacy Strategy. – Yours, etc,
PAT LARDNER,
Chief Executive,
Irish Funds,
Dublin 2.