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Culprits or bystanders? Offshore jurisdictions and the global financial crisis

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posted on 2023-06-09, 07:40 authored by Daniel HaberlyDaniel Haberly, Dariusz Wójcik
Questions have been raised regarding the role of low-tax offshore jurisdictions in the global financial crisis, based largely on evidence that many problematic asset-backed securities were issued from or listed in the Cayman Islands, Jersey, Ireland, and other ‘offshore’ sites. However, there has not been a systematic investigation of the offshore geography of crisis-implicated securitization. Here we fill this gap by constructing the first comprehensive jurisdictional map of the largest pre-crisis Asset-Backed Commercial Paper (ABCP) programs, and examining the rationale for and impacts of this geography in detail. We show that offshore jurisdictions were disproportionately involved in producing the most unstable ABCP classes. However, this is difficult to explain in terms of the traditional role of offshore banking centers as sites for direct avoidance of onshore regulation and transparency. Rather, we propose a Minskian model of pre-crisis offshore ABCP production, wherein these jurisdictions specialized in alleviating incidental institutional frictions (e.g. double taxation) hindering onshore financial innovation. In this context, they could sometimes be legitimately described as improving the institutional ‘efficiency’ of financial markets; however, by facilitating the endogenous evolutionary instability of these markets, this apparently innocuous service had profoundly negative effects. This normative disconnect poses a conundrum for offshore reform.

History

Publication status

  • Published

File Version

  • Accepted version

Journal

Journal of Financial Regulation

ISSN

2053-4833

Publisher

Oxford University Press

Issue

2

Volume

3

Page range

233-261

Department affiliated with

  • Geography Publications

Full text available

  • Yes

Peer reviewed?

  • Yes

Legacy Posted Date

2017-08-22

First Open Access (FOA) Date

2019-07-31

First Compliant Deposit (FCD) Date

2017-08-21

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