The Central Bank of Ireland published its Financial Stability Review, highlighting stretched valuations in parts of global financial markets and continued trade and economic uncertainty as the main risks to Ireland’s financial system. The Review finds that, despite Ireland’s exposure to international developments, Irish households, businesses and financial institutions currently have relatively healthy balance sheets, and the domestic banking system has the capacity to absorb a severe economic shock while continuing to support the economy. The Review notes a modest improvement in the near-term global outlook following greater clarity on tariffs, while warning that forecasts depend on current agreements being maintained and that further trade shocks remain possible. It points to a disconnect between elevated economic uncertainty and record equity prices, driven by US technology and AI-related stocks, alongside compressed corporate bond spreads, and highlights rising fiscal deficits and sovereign debt burdens as additional vulnerabilities; it also flags concerns about lending standards in non-bank private credit markets and the potential for certain non-bank financial intermediation (NBFI) segments with elevated leverage or liquidity mismatches to amplify shocks. On the domestic side, credit growth has picked up, driven by mortgages particularly for first-time buyers, with housing supply constraints identified as a key factor in house price pressures and signs of stabilisation in commercial real estate. On macroprudential policy, the Central Bank judges that maintaining the Countercyclical Capital Buffer rate at 1.5% remains appropriate; the number of identified Other Systemically Important Institutions is unchanged, with a small reduction in the O-SII buffer rate for one institution. Irish property funds are progressing towards meeting the macroprudential leverage limit ahead of the end of the implementation period in November 2027, while further work is underway to better understand the use of price-based liquidity management tools in Irish-domiciled funds and to analyse financial stability risks from Irish hedge funds.
Central Bank of Ireland 2025-11-17
Central Bank of Ireland keeps countercyclical capital buffer at 1.5% as Financial Stability Review warns of stretched global valuations and trade uncertainty
The Central Bank of Ireland's Financial Stability Review identifies stretched valuations in global markets and trade uncertainties as key risks to Ireland's financial system, though domestic balance sheets remain healthy. It highlights vulnerabilities like rising fiscal deficits, sovereign debt burdens, and concerns in non-bank financial intermediation. The Countercyclical Capital Buffer rate is maintained at 1.5%, with ongoing analysis of liquidity management in Irish funds and financial stability risks from hedge funds.