The Central Bank of Ireland published its report on the results of the second financial stability review of 2019. The report outlines key risks facing the financial system and the central bank assessment of the resilience of the economy and financial system to adverse shocks. Additionally, the Central Bank of Ireland published four Financial Stability Notes assessing the mortgage market and the functioning of the macro-prudential mortgage measures. These measures set limits on the size of mortgages that consumers can borrow through the use of loan-to-value and loan-to-income limits. Also published was a Financial Stability Note on mapping the market-based finance in Ireland.
The financial stability review indicates that as a small and open economy, Ireland remains vulnerable to shocks arising abroad. The possibility of a disorderly Brexit, changes to global tax policy, and a sudden change to global financial conditions are all ongoing risks to financial stability in Ireland. While the further fall in global interest rates mitigates near-term debt sustainability concerns, this can build vulnerabilities in the medium term. Domestically, an economy close to capacity and continued lending growth points to a gradual build-up of cyclical systemic risk. Overall, the banking system is now better able to absorb shocks, but profitability challenges have become more acute. The review also highlights that the countercyclical capital buffer rate has been retained at 1%. The Governor also announced an annual review of the other systemically important institutions framework, under which the six systemically important institutions have buffer rates of between 0.5% and 1.5%.
The Central Bank of Ireland released the following Financial Stability Notes:
- The financial stability note related to default by buyers highlights that there continues to be a lower likelihood of default for first time buyers compared with second and subsequent buyers.
- The note on mortgage servicing burdens and loan-to-income caps explores the relationship between monthly mortgage repayments and disposable income of borrowers in the context of the mortgage measures. The paper finds that the average household drawing down a mortgage in 2019 is spending almost one quarter of its net monthly income on mortgage repayments.
- Another financial stability note provides a measure of bindingness in the Irish mortgage market by combining estimates of credit available and take-up for individual Irish borrowers.
- The note titled "Mortgage borrowers at the loan to income limit” highlights that lenders respond to macro-prudential mortgage measures in the country by reducing lending and leverage to households seeking high loan-to-income ratios.
- The note on mapping market-based finance in Ireland explores growth in the market-based finance sector over the last decade, the composition of the sector domiciled in Ireland, and the benefits and vulnerabilities associated with this form of financial intermediation.
- Press Release on Financial Stability Review
- Financial Stability Review (PDF)
- Press Release on Notes on Mortgage Market
- Press Release on Note on Mapping Market-Based Finance
Keywords: Europe, Ireland, Banking, Securities, Insurance, Brexit, Macro-Prudential Policy, CCyB, Systemic Risk, Financial Stability Review, Market-Based Finance, Central Bank of Ireland
Sam leads the quantitative research team within the CreditEdge™ research group. In this role, he develops novel risk and forecasting solutions for financial institutions while providing thought leadership on related trends in global financial markets.
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