The graph (opposite page) charting the World Uncertainty Index¹ – a metric that is watched by the Central Bank of Ireland, and the Irish Fiscal Advisory Council is striking in that it shows that global uncertainty in the first half of 2025 had soared to levels dwarfing anything seen since the global financial crisis (GFC) of 2007-8, including the Covid pandemic.

Global uncertainty. The role of finance. History to repeat itself?
The causes will be largely identified with the capriciousness of the new US Administration, and the ‘tariff war’ being waged out of the White House, but there are other less evident factors at play – such as a rise in global interest rates, and, close to home for the financial services industry, questions arising as to whether some of the causative factors of the GFC are re-surfacing, but in different areas, and in different guises than where they surfaced during the turbulent years of 2007 and 2008.

In particular, might a future potential crisis be centred, not in a, now, strongly regulated banking sector, but in the wider asset management/non bank FI sectors? Ireland is, in 2025, one of the largest international funds jurisdictions in the world, from a domicile and regulatory oversight point of view, with over €6 trillion in assets – and the question also naturally arises, could it be in the eye of a future storm?

Just to focus the mind on that interest rate factor, interest rates in the US started to rise in early 2022, after Covid was deemed to have passed, with the Fed Funds Rate being brought back up to post (GFC) crisis highs to 5.5% rising by 400 basis points (4 percentage points). It has only been cut by 1% since then, despite the very evident displeasure of the President in his regular pronouncements on the matter and its Chairman, Jerome Powell.

But in that same post GFC time frame the indebtedness of the US Government has doubled (from 64% of GDP in Q1 2008) to today’s 121% (Q1 2025) ². The White House, with its ‘Big Beautiful Tax Bill’ with its ‘no tax on tips’, and no tax on social security or overtime, and its apparent reliance on putative tariff revenues at the same time is doubling down in the face of the price (of money) signals emanating from the Fed in the form of its conservative stance on interest rates in the post Covid period.

Indebtednesss and leverage are analogous concepts – and today the ‘leverage’ of the US Federal Government is at rates of interest that were deemed appropriate for a national debt percentage of only half that level eighteen years ago. Inevitably a debate has begun as to what the appropriate, and sustainable level of US debt relative to GDP actually is.

The Wall Street Journal in an online podcast addressed the subject in May. It speculated (all it or any economist can do) that levels approaching 170% might be difficult, and certainly 200% would not be good. So, for now maybe it might be OK, indicating that there is room, perhaps still, for the can to be kicked down the road. But then, it also said that this does not actually answer the question “is the debt in a bad place?”; the reality, the historic journal of record of Wall Street (it is the ‘journal’ after all) was that “it isn’t, until it suddenly is”.

It was leverage, and its distribution, and intractability, in various corners of the pre GFC world, including Ireland and its domestic banking sector, that lay at the heart of the bitter troubles that emanated for the world and Ireland in those years.

Ireland, and Ireland’s IFS sector in the global context
The well documented reforms to finance across the globe that followed have resulted in, in Ireland and the EU, a financial services industry which enjoys a level of governance and regulation that is vastly more sophisticated than anything that went before. And, certainly there is currently a chorus of concern, some of it reciprocated by Government, notably at EU Commission level, from the banking industry in particular about the need in particular for simplification and clarification in that regulation. These are referred to for example in the articles in this publication by the CEO of the Irish Banking & Payments Federation, Brian Hayes, a former head of the EU Parliament’s Monetary Committee (page 18) and by EY Ireland’s head of Banking & Capital Markets Danny Buckley (page 38).

The modern geography of world finance
The concerns that are surfacing internationally are mainly directed outside of the banking sector – from whom complaints are regularly made about their inability to raise leverage levels. And this has been not just from within the US or US, but from elsewhere, for example Switzerland, where Colm Kelleher, Chairman of UBS has led a well publicised campaign to resist what it sees as overcapitalisation efforts by the Swiss National Bank in respect of the rescued Credit Suisse, which UBS has onboarded.

Pointing to this shift of financing activity to non bank areas, the Economist newspaper in a Special Report on the topic in its May 31st issue observed that over the past decade ‘American finance has been transformed’. A mix of asset managers, hedge funds, private equity firms and trading firms – including Apollo, Blackrock, Blackstone, Citadel, Jane Street, KKR and Millennium – all names that feature in the annals of the Irish investment funds industry, in this Yearbook, and in the Finance Dublin Debt and Equity Capital Markets annual Deals Awards - ‘have emerged from the shadows to elbow aside the incumbents’.

“They are fundamentally different from the banks, insurers, and old style funds they have replaced. They are also big, complex, and untested”, the Economist darkly warns.

The Economist’s warnings are apt and timely (see the uncertainty chart above).

The articles in this issue of the Yearbook provide multiple insights on the granular work that is being done across the IFS industry in Ireland, for example in the areas of regulation of AI, fund tokenisation, securitisation, and in an area that has come into particular focus in recent times - fund finance.

At the heart of the risk equation
A regular theme of Finance Dublin has been the role and dangers of over reach in financing – manifested in excessive leverage. This is reflected in the focus we have placed in issues over the years on leverage at a national sovereign level, and marked in the award in the 2025 Finance Dublin Deals of the Year Awards to Minister for Finance Paschal Donohoe regarding the prudential management of the Irish national debt in the years since the GFC - moving it in exactly the opposite direction than that of the US, as charted above.

At the heart of the GFC, and indeed of all financial crises are two things – an inability of debtors across a broad swathe of the economy (for example many Irish mortgage holders in the Irish banking sector in 2008-12) to meet their credit obligations combined with an inability to finance those obligations, either from own, or alternative sources, including credit, or re-mortgaging.

The broad picture in 2025 is that the housing sector, in Ireland certainly, from a financing and stability point of view is not of concern - not surprising in view of the care and attention it has received since the financial crisis from regulators and lawmakers.

Where new innovative sources of leverage (and problematic leverage) may potentially arise most likely will be in ‘new finance’ areas in the hedge funds, ‘non banks’, private credit, and private equity spaces where liquidity is lower.

When the payments sector is added in, and cryptocurrency and its packaging is added to the mix, the scope widens further for scrutiny at a regulatory level, and indeed systemic concern. This applies across the board - at Government, and indeed all societal levels, not least the “financial services” industry itself, which, as its title suggests, is the profession that makes financial “service” its daily preoccupation.

In assessing the big picture, as to whether there is unacceptable systemic risk, the key to the answer will lie in questions as to where and how inappropriate leverage may surface within the new and rapidly evolving financial services environment of 2025-26.

There is no question but that the world of finance, and the finance of the world in mid 2025 faced very serious questions – the rapid spike of the WUI shows that. It is undoubtedly the case that this centres on the exacerbation of geopolitical and economic tensions and disruption to global commerce caused by the chaotic and fundamentally misguided ‘tariffs first’ economic policies ordered by President Trump at the outset of his second term. But it also is exacerbated by the fiscal problems of the US, as evidenced by signals from the bond and foreign exchange markets, where yields rose sharply in the Spring along with a significant decline in the US dollar – a proof even perhaps to the authors of the tariffs policy that it is failing, using the weakness of the dollar in H1 2025, an economic indicator of their own preference, as a metric of the policy’s success or failure.⁶

Whatever may transpire on the fiscal front for the US in 2025 and going into 2026, there will be heightened scrutiny in the financial services industry, and this will also focus on all areas where there is innovation in play. This will need to be understood and addressed in the Irish international financial services industry, and especially in the asset management and investment funds industry.

Fund finance in Ireland
A reading of the article by four of law firm Ogier’s Irish partners in this Yearbook (page 28) provides a perspective on the developments in and scale of the “fund finance” segment of Ireland’s investment funds sector, now with a NAV of over €6 trillion.

The inherent concerns around issues of liquidity, for example, are evident in the article, while leverage will necessarily remain at the forefront of concerns at Central Bank of Ireland/European Central Bank regulatory level in its oversight of the sector.

Innovation in services delivery will need to continue to be encouraged and this will happen if the industry, and regulators alike cooperate to ensure that perceived problems are addressed. An example of this is given by EY’s Danny Buckley in his article (referenced in page 38 of this Yearbook), where he refers to industry-led initiatives to protect access to cash.

The development of new products in the funds sphere – for example the phenomenon of “leveraged ETFs” – an add on to a traditionally “staid” (but explosively popular) sector of the funds catalogue – are an example of where this regulatory focus will necessarily be more intensive in the light of potential concerns.

Likewise in other areas – for example in insurance, and in “insurtech”, and in online and digital banking. Here, AI has been surfacing across all segments of the market, from customer service bots, to tax compliance tools, to credit and insurance assessment.

Technology & Artificial Intelligence in financial services
The extensive AI consideration underway across the board in the investment funds sector is referenced in the article on page 40 by A&L Goodbody’s Eimear Keane, Mark Ellis and Yvonne McGonigal, where, they point out, the Irish Central Bank has been quick to communicate that, as a regulatory principle, human oversight must remain primary, for example in the employment of tools in the area of fund management decision making, such as stock selection and, indeed regulatory diversification rules, as required by EU Directives.

Their article also references ‘AI washing’ a term coined in recent times to refer to the rendering opaque of regulatory compliance in the AI area, akin to an older analogous term coined over a decade ago, ‘green washing’.

These areas, combined with other recent terminology has joined the controversial, with widespread questioning now being raised as a result of White House ‘culture wars’ in the US, where terminologies such as “DEI” and “ESG” are being challenged.

Whatever about the politics of these debates, 2025 and undoubtedly 2026 will see the continuation of such discussions at corporate level as well as at regulatory level in the financial services industry. It seems likely that one benign outcome from these ideological wars will see an early victory of orthodox economic policy, in America notably, if Wall Street’s ‘bond market vigilantes’ get their way, as they always do.

It may be too much to hope for that that might be supplemented by an outbreak of accord, along ‘apple pie and motherhood’ lines that common human principles, that put the planet first, as an ecosystem, with eternal and objective rules that apply in commerce, trade, finance, risk, and life will prevail – no matter what the ideology, be it left, right, socialist or nationalist.

All that could see a looming financial crisis, or worse avoided. Will that happen? – maybe, or maybe not because there are enough dark and evil forces out there to prevent it happening.

What defiitely can be done is that we heed the timeless advice of an Irish lawyer and MP of the eighteenth century, John Philpot Curran - “the price of freedom is eternal vigilance”.

Ireland in Europe: the geopolitics, the economics, the possibilities, and the realities

The outlook for the Irish IFS industry, and indeed for the entire planet is uncertain, but certainly not bleak. The risks are at a particularly high level, as the WUI Index shows, but so also are the possibilities. The challenges – demographic change in many places, technical and regulatory inertia in large swathes of the world – the global immigration crisis, and capricious governance are stresses to the historic legacy of the species, and the finance system. But then there are the positives - the supply side, including technology, and increased enlightenment regarding governance, specifically financial services governance.

The articles in this issue are proof of the innovative thinking that is going on in the sphere in Ireland, Eighteen years ago, when the GFC broke, Ireland’s International Financial Services sector was about a third of what it is today, growing since then in parallel with an equally spectacular growth in the national economy of Ireland.

Its domestic banking sector was dismally leveraged as a conduit for a domestic housing bubble encouraged by continued genuine growth in the underlying economy (and, as the debt chart on page 7 shows, genuine deleveraging of the national Exchequer in the “Celtic Tiger” years prior to that).The climb-back from that crash was painful. But it was not slow, and this was because the lessons were learned very quickly, and there was a wise choice of budgetary policies, and economic model. Ireland was seen very quickly in the early days or recovery from the GFC as a sovereign ‘poster boy’ of that recovery.

One of the key political players in that process was Ireland’s Minister for Finance, Paschal Donohoe. On page 12 of this publication we publish an interview with him – the subject being the euro, the EU’s trade negotiations with the United States, his longer term vision for the euro, and the EU economy.

In those roles he will play an influential role, particularly given the pivotal role of the exchange rate of the euro – itself seen by the top economic adviser of the US President as a key indicator of the success or otherwise of those trade policies, as referenced above.

The Finance Minister’s comments are realistic, a reassurance perhaps for hopes of a mutually beneficial outcome for both the US and the EU aa a sign of patience and commitment at least on the part of the Europeans to a result that can result in the gains from trade being shared by both parties to a deal.