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Culprits or Bystanders? Offshore Jurisdictions and the Global Financial Crisis

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  • Daniel Haberly
  • Dariusz Wójcik

Abstract

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) programmes, 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 centres 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 (eg 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.

Suggested Citation

  • Daniel Haberly & Dariusz Wójcik, 2017. "Culprits or Bystanders? Offshore Jurisdictions and the Global Financial Crisis," Journal of Financial Regulation, Oxford University Press, vol. 3(2), pages 233-261.
  • Handle: RePEc:oup:refreg:v:3:y:2017:i:2:p:233-261.
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    File URL: http://hdl.handle.net/10.1093/jfr/fjx005
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    Cited by:

    1. Ronen Palan & Hannah Petersen & Richard Phillips, 2023. "Arbitrage spaces in the offshore world: Layering, ‘fuses’ and partitioning of the legal structure of modern firms," Environment and Planning A, , vol. 55(4), pages 1041-1061, June.
    2. Shaina Potts, 2020. "(Re-)writing markets: Law and contested payment geographies," Environment and Planning A, , vol. 52(1), pages 46-65, February.
    3. Jonathan Beaverstock & Adam Leaver & Daniel Tischer, 2023. "How financial products organize spatial networks: Analyzing collateralized debt obligations and collateralized loan obligations as “networked productsâ€," Environment and Planning A, , vol. 55(4), pages 969-996, June.
    4. Murau, Steffen & Rini, Joe & Haas, Armin, 2020. "The evolution of the Offshore US-Dollar System: past, present and four possible futures," Journal of Institutional Economics, Cambridge University Press, vol. 16(6), pages 767-783, December.

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