Central Bank: Financial sector ready for Brexit

Irish financial services firms are fully prepared for the short-term consequences of a Brexit, the Central Bank has said.

At yesterday’s launch of the Central Bank’s latest macro-financial review, deputy governor Sharon Donnery said that the regulator has been engaging with financial sector firms to “assess their preparedness for the risk associated with Brexit”.

When asked what level of readiness has been found, Ms Donnery replied that the Central Bank is “satisfied all short-term contingencies have been prepared for” and that the bank does not have any huge concerns about firms struggling should Britain leave.

In its latest review, the Central Bank says that a vote in favour of Britain leaving the EU, on June 23, would have short-term and long-term impacts on Ireland.

“A negative impact on Irish exports to the UK could be expected,” the bank said.

Commentators have also pointed to the obvious short-term shocks from a Brexit vote, of market and exchange rate volatility and uncertainty.

Sterling would, some have suggested, fall in value by around 15% in the immediate aftermath of a ‘Leave’ vote.

Ms Donnery offered a blunt “no comment” when asked about the Central Bank’s forecast for how steep sterling might fall in the event of a Brexit.

She said that the Central Bank would be on hand to help via the provision of liquidity and communication and information to financial services firms should Brexit come about.

Overall, the Central Bank reiterated that economic conditions are improving and that while public and private debt levels remain high, they are slowly moving in the right direction.

However, it warned that the external risks to Ireland’s economic wellbeing “remain elevated” and have increased since its last macro-financial review.

Today also sees the Central Bank launch the consultation process or ‘call for evidence’ surrounding the controversial mortgage lending rules it introduced last year.

Submissions can be made up until August 10 and the findings of its first review of the rules will be published in November.

However, Ms Donnery’s comments on the matter, yesterday, did not suggest any alteration is likely.

“We acknowledge that our measures impact individuals’ ability to access credit and purchase houses,” she said.

“However, these loan-to-value and loan-to-income ratio limits are designed to protect the system as a whole and limit the risk of a house price-credit cycle emerging once again. And, in this context, we must take a medium to long-term view.”

Meanwhile, in light of budgetary watchdog, the Irish Fiscal Advisory Council last week expressing initial doubt that Ireland will remain in line with EU fiscal rules, in terms of meeting its budget deficit reduction targets, the Central Bank’s chief economist Gabriel Fagan yesterday said he was “not too concerned that we’d violate the rules”.

He said staying within the rules is not a choice or an option but a requirement and Ireland will adhere to that.

“The general government gross debt-to-GDP ratio remains high, leaving the public finances vulnerable to economic and financial shocks,” the Central Bank said in its latest review.

“Maintaining fiscal discipline is necessary to keep the public finances on a sustainable path.”