Non-Bank Financial Intermediation

Reflective of the scale of the sector in Ireland and particular connections to the domestic economy, developing macroprudential policy for non-banks is a key priority for the Central Bank.

The non-bank sector is broad and diverse with numerous heterogenous business models. As such it is necessary to prioritise those segments of the non-bank sector that represent the largest systemic risk. Consistent with that, the Central Bank’s initial focus is on the investment fund sector, due to its size; growth in the past decade; and its interconnectedness, which taken together, generate the potential for systemic risk through collective action in fund cohorts. This ability to generate systemic risk was evident in the March 2020 “dash for cash”, and the UK gilt market stress in 2022.

Tackling this systemic risk requires a macroprudential perspective that enhances the understanding of investment fund sector vulnerabilities and interconnectedness. It should target the collective action of fund cohorts, not idiosyncratic risk management issues at individual level.  It also requires global and European coordination, reflecting the cross-border nature of the funds industry. While international efforts are underway in this regard, the lack of a complete and operational macroprudential framework remains a key gap. The Central Bank is working with peer institutions in the EU and internationally to advance work in this area.