Central Bank of Ireland publishes first Systemic Risk Pack

• First publication of a new bi-annual indicator pack
• Pack presents indicators and visualisation methods for monitoring systemic risk in the Irish financial system using latest available data
• Provides overview on current level of systemic risks in line with the objectives of the Bank’s macroprudential policy

As Ireland’s macroprudential authority, the Central Bank of Ireland (the Bank) is responsible for the monitoring of risks to financial stability and the implementation of policies to limit its impact on both the financial system and the real economy.

As such, the Bank has developed a Systemic Risk Pack (SRP) with two heatmaps which provide a point-in-time and historical overview of the Irish systemic risk landscape. This bi-annual publication is designed to facilitate macroprudential analysis and provides a comprehensive systemic perspective on risks, complementing the sectoral risk analysis provided by the Bank’s Macro-Financial Review, SME and Household Credit Market Reports.

To provide structure to the broad range of indicators required to monitor systemic risk, the SRP examines risks in view of the four intermediate objectives of the Bank’s macroprudential policy framework. These are:

• to mitigate and prevent excessive credit growth and leverage,
• to mitigate and prevent excessive maturity mismatch and market illiquidity,
• to limit direct and indirect exposure concentrations,
• to reduce the potential for systemically important banks to adopt destabilising strategies and to mitigate the impact of such actions.

The October 2017 SRP highlights a number of areas for careful monitoring, including developments in the residential and commercial real estate markets, the relative importance of property-related lending on banks’ balance sheets, and the degree of concentration in the banking sector itself. Dark green shades in the heatmap also show subdued credit dynamics and continuing post-crisis deleveraging in the banking system.

Notes

• While the indicators contained in the SRP are used throughout the policy making process they are not the only input to policy decisions, which also crucially depends on policy-maker judgement and more in-depth analysis of specific risks highlighted by these indicators.
•  Red and orange colours highlight indicators moving in a direction associated with excessive risk taking or a potential build-up of instability.
• Darker green colours reflect indicators that have moved substantially in the opposite direction and will generally be associated with subdued financial system activity.
• Lighter shades of green and yellow are indicative of more benign conditions.
• The approach that has been taken to developing the risk pack makes it a very flexible tool and will allow for it to evolve over time, as new data sources become available, other relevant indicators are identified, and approaches to data visualisation evolve.