Among the main risks listed as facing the financial system are a disorderly Brexit, an abrupt tightening in global financial conditions, and a re-emergence of sovereign debt sustainability concerns in the euro area. While lenders have become more resilient to a downturn in recent years through higher capital, and borrowers through reduced debt levels, vulnerabilities remain, the Central Bank has said.
To support the precise design and calibration of the SyRB, the Central Bank is considering the interaction between different capital buffers and the overall level of bank capital that is appropriate for a small, highly-globalised economy, such as Ireland. This level of capital will inform the calibration of both cyclical and structural buffers.

Acting Governor, Sharon Donnery, said, “As a small and highly globalised economy, with a particular reliance on activity from foreign multinational companies, Ireland is both more sensitive to developments in the global cycle and more prone to structural macroeconomic shocks.

It is critical that we continue to identify, plan and prepare to mitigate the impact of those shocks, should they materialise. Building a resilient system is central to this. Resilience is not something that can be built after an event, but is something that should be in place well before any issues arise.

We continue to expand our macroprudential framework to ensure we have the right tools to manage potential risks to financial stability and the addition of the Systemic Risk Buffer will be an important tool for us in building a resilient banking system with sufficient capital buffers to absorb these structural shocks.”

The Central Bank’s macroprudential policies, which currently include the mortgage measures, the Countercyclical Capital Buffer (CCyB) and capital buffers for systemically-important institutions (O-SII), contribute to safeguarding financial stability in Ireland. The Review confirms that the CCyB has been maintained at 1 percent.

The Review shows that the resilience of the domestic banking system has strengthened in recent years, through higher levels of capital, more stable sources of funding and lower non-performing loans (NPLs).