Discussion of the the Bank of Ireland Paper on loan origination by investment funds

by Frédéric Blanc-Brude
Abstract:
The Central Bank of Ireland has issued a discussion paper on loan origination by investment funds, in which it suggests that developing alternative sources of financing to bank loans may be beneficial to the real economy but requires the careful consideration of the potential development of “shadow banking” risks. In this response to the discussion paper, we argue that the development of alternative sources of financing is most relevant with regards to long-term private debt, in particular the financing of SMEs and infrastructure projects. The demand for such financing has been identified as instrumental to long-term growth in Europe, which justifies regulatory changes. We add that such instruments are also appealing for institutional investors as supplier of long-term credit, as they increase their allocation to “direct investments” in illiquid assets yielding predictable cash flows.
Reference:
Discussion of the the Bank of Ireland Paper on loan origination by investment funds (Frédéric Blanc-Brude), In EDHEC Business School Working Paper, 2013.