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Significant changes have taken place in the balance sheets of financial corporations in the wake of the global financial crisis over the 2008-2014 period. Some of these changes are apparent in the accounts but some are less evident due to offsetting shifts within the sector.

Central Bank (S.121)
The Central Bank (S.121) sector saw a dramatic decrease in Currency and Deposits (AF.2) since 2010 and a large increase in Debt Securities (AF.3) in 2013, but with an overall downward trend in assets. In 2014, 67% of total financial assets came from Debt Securities (Figure 3) while 84% of total liabilities were Currency and Deposits (AF.2) with the remainder coming from Equity (AF.5). The assets of the Central Bank increased from €54bn in 2007 to €202bn in 2010 mainly as a result of the increased emergency liquidity assistance (ELA) provided to the Irish banking system.

In 2013 the conversion of assets from Currency and Deposits (AF.2) to Debt Securities (AF.3) was a result of securities acquired by the Bank following the liquidation of the Irish Bank Resolution Corporation (IBRC). The portfolio of securities is comprised of eight non-amortising Irish Government Floating Rate Notes (FRNs) (€29bn), non-amortising NAMA Bonds (€13bn), and the 5.4% Irish 2025 Government bond acquired by the Bank following the termination of the IBRC’s market repo in February 2013 (€4bn). For further details see Note 16 in the Central Bank Annual Report 2013 (page 122).

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Monetary Financial Institutions (S.122 + S.123)
The Monetary Financial Institutions sector is made up of deposit-taking corporations such as retail banks, building societies and credit unions (S.122) and Money Market Funds (S.123) but excludes the Central Bank (S.121). The balance sheet of the Monetary Financial Institutions sector contracted during the period 2008-2013, where its assets fell by €742bn and its liabilities by €753bn, as shown in Figures 4 and 5. During 2014 this trend was reversed as financial assets grew by 6.5% and liabilities by 4.7% over their 2013 values. This growth was driven by increased Debt Securities (AF.3) on the asset side and increased investment through Equity (AF.5) on the liabilities side.

The assets and liabilities, which peaked in 2008 at €1,743bn and €1,754bn, have declined to €1,066bn and €1,048bn respectively – a reduction of approximately 40% in this period. Part of the decreasing trend over recent years is due to the reclassification of Money Market Funds (S.123). This led to some assets being redefined as Investment Funds (S.124).

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Investment Funds (S.124)
The Investment Funds sector (S.124) consists of all collective investment schemes except those classified in the Money Market subsector. The balance sheet of the Investment Funds sector continued to grow during 2014. Figure 2 also shows the change in contribution by S.124 to the overall size of the financial sector balance sheet. During 2014 this contribution increased in both absolute and in relative terms (Figure 6). Apart from a drop in balance sheet size during 2008, relating to the financial crisis, the sector has exhibited continuous growth in the intervening period, where its financial assets have grown cumulatively by €1,286bn.

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During the period 2008-2014, the Investment Funds sector, excluding Money Market Funds, has increased more than four-fold in size in Ireland. The increase in assets is mainly driven by Debt Securities (AF.3) and Equity and Investment Funds (AF.5), while the liabilities are mainly composed of equity. Part of this increase is due to the reclassification of Money Market Funds (S.123) to Investment Funds (S.124) as discussed above.

It should be noted that the positive year-on-year growth in total financial sector liabilities from 2005 to 2010 has also been heavily influenced by the expansion of the Investment Funds sector in Ireland.

Other Financial Corporations (S.125 + S.126 + S.127)
This sector is composed of Other Financial Intermediaries (S.125), Financial Auxiliaries (S.126), and Captive Financial Institutions and Money Lenders (S.127). Other Financial Intermediaries (S.125) include companies engaged in financial leasing and consumer and other lending, securitisation vehicles, derivative and security dealers, treasury companies and a range of other companies engaged in financial intermediation. The Financial Auxiliaries sector (S.126) covers companies which provide auxiliary financial services and other financial advisory and consultancy services such as loan brokers and investment advisors. They are companies which are principally engaged in activities closely related to financial intermediation but which are not financial intermediaries themselves. The balance sheet of S.126 is considerably smaller than the sectors S.125 and S.127. The Captive Financial Institutions sector (S.127) consists of financial corporations which are neither engaged in financial intermediation, nor in providing financial auxiliary services. These include trusts, special purpose entities, money lenders, treasuries, certain types of sovereign wealth funds, and holding companies that simply own the assets of subsidiaries. 

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The Other Financial Corporations sector has seen an increasing trend in balance sheet growth over the period 2005-2011 (Figures 7 and 8). In 2012 and 2013 the sector underwent a contraction in its balance sheet mainly due to a reduction in Debt Securities (AF.3). While the liabilities are largely made up of Debt Securities (AF.3) and Loans (AF.4), the assets are dominated by Loans (AF.4) in the most part held by treasury companies. These are often set up in Ireland to fund the financial activities of related multinationals in Ireland and Europe.

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Insurance Corporations and Pension Funds (S.128 + S.129)
The Insurance Corporations (S.128) and Pension Funds (S.129) sector saw an overall growth in balance sheet over the period 2005-2014 (Figure 9). The increase in 2014 on the assets side was driven by Equity and Investment Fund Shares (AF.5). Most of the liabilities are to households which are categorised as Insurance, Pension and Standardised Guarantee Schemes (AF.6). This category includes non-life insurance technical reserves, life insurance and annuity entitlements, and pension entitlements.

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The AF.6 classification on the asset side of the balance sheet also covers reinsurance data for Ireland. Here an insurer may protect against an unexpectedly large number of claims, or exceptionally heavy claims, by taking out a reinsurance policy with a reinsurer. Reinsurance corporations are concentrated in a limited number of financial centres and so many of the reinsurance flows are transactions with the rest of the world.

EU Comparison
The 2014 balance sheet assets for S.12, as a percentage of GDP, are shown for selected EU countries in Figure 10. This graph shows the importance of Ireland’s financial sector to the Irish economy. Taking financial sector assets as a percentage of GDP, Ireland ranks as the third highest country in Europe, with Luxembourg and Malta being first and second highest respectively.

Note: The value of financial assets, as a percentage of GDP, for Luxembourg is 18,404.

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We may also look at the absolute size of the Irish Financial Sector relative to other EU countries, this is shown in Figure 11. Here Ireland is mid-table,with a financial sector that is smaller than countries such as the United Kingdom, Germany, and France but substantially bigger than Belgium, Austria, or Finland. 

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