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

We examine the factors determining cross-border debt issuance by banks using a unique dataset on international banks issuing debt through special purpose entities (SPEs). Our results indicate that such debt issuance is consistently explained by bank size and leverage. We also find that cross-border SPE debt issuance is associated with more stringent capital flow policies and macro-prudential regulation in the bank’s home country, and incentivised by higher domestic corporate taxation and herding behaviour. These findings suggest potential implications for financial stability in that cross-border debt funding through SPEs may involve a relatively opaque build-up of leverage beyond the banking perimeter.