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Contents | Executive summary | How to obtain this publication | Additional information
The following OECD assessment and recommendations summarise chapter 3 of the Economic survey of Ireland published on 16 April 2008.
Contents
Financial system risks have been contained
Lending has been strong, not only for residential mortgages but also for commercial property and the construction industry. Property-related lending now accounts for more than half of the stock of bank lending. Deposit growth was much weaker than lending growth, leading to a widening funding gap, which is proportionally the largest in the European Union. This gap is mainly covered by the issuance of securities as well as by borrowing from other financial institutions. The Central Bank and Financial Services Authority of Ireland (CBFSAI) had clearly identified strong credit growth and rising indebtedness as major systemic vulnerabilities. To reduce such vulnerabilities, the CBFSAI implemented a new Consumer Protection Code, which limits the scope for predatory lending practices, and introduced a forward-looking liquidity regime just before the international financial market turmoil struck. It also took regulatory action to reduce risks by increasing the risk-weighting for high loan-to-value mortgages for owner-occupiers and speculative commercial real estate lending.
The international financial market turmoil has so far raised funding costs for Irish banks to some extent, while lending standards have tightened. Both are likely to reduce banks’ willingness to supply loans and bank lending has decelerated sharply, though weaker demand has clearly also played a role. The global financial market turmoil has brought new policy issues to the forefront. The liquidity squeeze is partly due to a lack of transparency internationally. The CBFSAI has moved quickly in this respect. A survey of the major banks in Ireland shows that they have little exposure to the sub-prime market, hedge funds and the private equity sector. This publication initiative is welcome and should be made a regular feature. The Irish banks are highly profitable and well-capitalised, so they should have considerable shock-absorption capacity. But it would also seem important to be prepared to deal with downside risks. In this context, the EU Deposit Guarantee Schemes Directive is being reviewed and Ireland should consider the efficacy of its own arrangements in the light of this.
How to obtain this publication
The Policy Brief (pdf format) can be downloaded in English. It contains the OECD assessment and recommendations.The complete edition of the Economic survey of Ireland 2008 is available from:
- SourceOECD for subscribing institutions and many libraries
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Government officials with accounts ( subscribe) can go to the "Books" tab on OLIS
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Additional information
For further information please contact the Ireland Desk at the OECD Economics Department at eco.survey@oecd.org. The OECD Secretariat's report was prepared by Sebastian Barnes and David Rae under the supervision of Peter Hoeller. Research assistance was provided by Isabelle Duong.
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