Low tax Financial Centres and the Financial Crisis: The Case of the Irish Financial Services Centre
Jim Stewart, School of Business, Trinity College
This paper argues that low tax centres played a key role in the development of a shadow banking system and in the global financial crisis. The paper focuses on the Irish Financial Services Centre (IFSC). The paper examines the impact and operation of firms issuing asset backed securities and other funds. The paper shows that the presence of these entities in the IFSC creates relatively few jobs and may pose a considerable regulatory risk to financial firms in other countries. The paper also examines a number of case studies of banks with IFSC based subsidiaries that failed, focusing in particular on four German owned banks. The paper argues that existing and proposed regulation within the EU will fail to reduce excessive risk taking because regulation is largely host country based. Finally the paper concludes that low tax centres based on regulatory and tax arbitrage are unlikely to provide long term sustainable economic success.
Shadow banking; Irish Financial Services Centre: hedge funds and special purpose vehicles: German Banks, regulation and reform