Is Ireland vulnerable again as the world’s vast shadow banking system starts to crack?

Shadow banking is the dog that has not barked during the latest global spasm of financial stress. This is very fortunate, especially for small countries such as Ireland that have bet the farm on this industry. 

If that vast nexus of international contracts and opaque leverage starts to unravel, there are no obvious circuit breakers to stop a dangerous chain reaction.

These shadow entities borrow short in fickle capital markets to lend long, or to buy illiquid securities, or to invest in real estate. They do so on a galactic scale with endemic mismatches of maturity. By definition, this is mostly beyond the oversight of regulators.  

They behave like banks but cannot tap the emergency window of major central banks in a liquidity crisis. There is no lender of last resort standing behind them. Nor are they protected from financial runs by government deposit insurance. 

This is a recipe for a self-feeding doom loop when things go wrong.

 US Treasury Secretary Janet Yellen. Her tone has changed. Five years ago, she told a forum in London that we would never see another financial crisis “in our lifetimes”. 

The collapse of Silicon Valley Bank and the rescue of First Republic under her watch has been a sobering check to regulatory hubris. 

Ambrose Evans-Pritchard Telegraph 4 April 2023 

https://www.telegraph.co.uk/business/2023/04/04/ireland-vulnerable-world-shadow-banking-system/

The shadow banking system and The Volcker Rule

https://englundmacro.blogspot.com/2023/03/efforts-to-make-banks-safer-can.html

SVB Collapse Complicates Banks’ Efforts to Unload More Than $25 Billion of Junk Debt - WSJ