Shadow banking in Ireland

A link from Naket Capitalism tells the story of German banks colluding to un special purpose investments in Ireland without regulation. The author of the Debt Generation exposes the scam. Key quote:

The same banker told me this. She was aware of instances, and so was everyone else, of banks, German banks, who used to fly their people from Germany to Ireland in order to do deals that were not allowed in Germany.

German banks set up subsidiaries in Ireland. These subsidiaries were often registered as completely Irish companies. Back in Germany the German regulator (BaFin) had strict and enforced rules. Very good rules for the most part. Far, far better than Britain or Ireland. But these good rules, properly enforced meant German banks could not do many of the most lucrative and in hind sight reckless kinds of deals.

The business was regulatory arbitrage, making money of the margin between tight regulations in Germany and loose in Ireland. So we can see that senior debt holders will take the hit when they themselves entered into isky regulatory arbitrage. After all, these senior bond holders must have wondered why they had to fly to Ireland to deals with German banks.