The Central Bank of Ireland ( ga, Banc Ceannais na hÉireann) is
Ireland
Ireland ( ; ga, Éire ; Ulster Scots dialect, Ulster-Scots: ) is an island in the Atlantic Ocean, North Atlantic Ocean, in Northwestern Europe, north-western Europe. It is separated from Great Britain to its east by the North Channel (Grea ...
's
central bank
A central bank, reserve bank, or monetary authority is an institution that manages the currency and monetary policy of a country or monetary union,
and oversees their commercial banking system. In contrast to a commercial bank, a central b ...
, and as such part of the
European System of Central Banks
The European System of Central Banks (ESCB) is an institution that comprises the European Central Bank (ECB) and the national central banks (NCBs) of all 27 member states of the European Union (EU). Its objective is to ensure price stability t ...
(ESCB). It is the country's financial services regulator for most categories of financial firms. It was the issuer of
Irish pound banknotes and coinage until the introduction of the
Euro
The euro ( symbol: €; code: EUR) is the official currency of 19 out of the member states of the European Union (EU). This group of states is known as the eurozone or, officially, the euro area, and includes about 340 million citizens . ...
currency, and now provides this service for the
European Central Bank
The European Central Bank (ECB) is the prime component of the monetary Eurosystem and the European System of Central Banks (ESCB) as well as one of seven institutions of the European Union. It is one of the world's most important centr ...
.
The Central Bank of Ireland was founded on 1 February 1943, and since 1 January 1972 has been the banker of the
Government of Ireland
The Government of Ireland ( ga, Rialtas na hÉireann) is the cabinet that exercises executive authority in Ireland.
The Constitution of Ireland vests executive authority in a government which is headed by the , the head of government. The gover ...
in accordance with the Central Bank Act 1971, which can be seen in legislative terms as completing the long transition from a
currency board
In public finance, a currency board is a monetary authority which is required to maintain a fixed exchange rate with a foreign currency. This policy objective requires the conventional objectives of a central bank to be subordinated to the exch ...
to a fully functional central bank.
Its head office, the
Central Bank of Ireland building, was located on
Dame Street
Dame Street (; ) is a large thoroughfare in Dublin, Ireland.
History
The street takes its name from a dam built across the River Poddle to provide water power for milling. First appears in records under this name around 1610 but in the 14th ...
, Dublin from 1979 until 2017. Its offices at Iveagh Court and College Green also closed down at the same time. Since March 2017, its headquarters are located on
North Wall Quay
The Dublin quays () refers to the two roadways and quays that run along the north and south banks of the River Liffey in Dublin, Ireland. The stretches of the two continuous streets have several different names. However, all but three of the ...
, where the public may exchange non-current Irish coinage and currency (both pre- and post-decimalization) for Euros, as well as high value Euro banknotes and "mutilated" currency. It also operates from premises at nearby Spencer Dock. The
Currency Centre
The Currency Centre (also known as the Irish Mint) is the mint of coins and printer of banknotes for the Central Bank of Ireland, including the euro currency. The centre is located in Sandyford, Dublin, Ireland. The centre does not print the ...
(Irish Mint) at
Sandyford
Sandyford () is a suburb of Dublin, located in Dún Laoghaire–Rathdown, Ireland.
Sandyford Business District makes up much of the suburb and encompasses 4 business parks: Sandyford Business Park, Stillorgan Business Park, Central Park and S ...
is the currency manufacture, warehouse and distribution site of the bank.
The Central Bank's reputation was damaged in the Irish financial crisis. While the Bank has taken actions to address some of the main criticisms (e.g. mortgage lending controls, and the new
modified gross national income
Modified gross national income, Modified GNI or GNI* was created by the Central Bank of Ireland in February 2017 as a new way to measure the Irish economy, and Irish indebtedness, due to the increasing distortion that the base erosion and prof ...
metric), there is evidence other issues remain (e.g. commercial property bubbles, and light-touch regulation), and that new controls, such as mortgage limits, are being circumvented by Irish banks and the Irish State.
History
From Currency Commission to Central Bank (1920–1942)
On the independence of the
Irish Free State
The Irish Free State ( ga, Saorstát Éireann, , ; 6 December 192229 December 1937) was a state established in December 1922 under the Anglo-Irish Treaty of December 1921. The treaty ended the three-year Irish War of Independence between ...
in 1922, the new state's trade was overwhelmingly with the United Kingdom (98% of Irish exports and 80% of imports in 1924), so the introduction of an independent currency was a low priority. British banknotes (British Treasury notes,
Bank of England notes), and notes issued by Irish trading banks circulated (but only the first were
legal tender
Legal tender is a form of money that courts of law are required to recognize as satisfactory payment for any monetary debt. Each jurisdiction determines what is legal tender, but essentially it is anything which when offered ("tendered") in ...
) and British coins remained in circulation.
Under the terms of the ''Coinage Act 1926'', the Finance Minister was authorised to issue coins of silver, nickel, and bronze of the same denominations as the British coins already in circulation – however, the Irish silver coins were to contain 75% silver as compared to the 50% silver coins issued by Britain at the time. These coins entered circulation on 12 December 1928.
Under the terms of the ''Currency Act 1927'', a new unit of currency, the ''Saorstát Pound'' ''(Free State Pound)'' was created, which was to be maintained at parity with the British
Pound Sterling
Sterling (abbreviation: stg; Other spelling styles, such as STG and Stg, are also seen. ISO code: GBP) is the currency of the United Kingdom and nine of its associated territories. The pound ( sign: £) is the main unit of sterling, and ...
by a Currency Commission which would keep British government securities, Pounds Sterling cash, and gold to keep a 1–1 relationship.
From 1928 to 1979, the UK and Ireland were in a
currency union
A currency union (also known as monetary union) is an intergovernmental agreement that involves two or more states sharing the same currency. These states may not necessarily have any further integration (such as an economic and monetary union, ...
.
Foundation of the Central Bank to decimalization (1942–1971)
The ''Central Bank Act 1942'' which came into effect on 1 February 1943 renamed the
Currency Commission
The Currency Commission (''Coimisiún Airgid Reatha''), was created by thas part of the policy of the Irish Free State to create the 'Saorstát pound'. The Currency Commission commissioned the Series A Banknotes, through the advice of an advisory ...
the ''Central Bank of Ireland'', although the organisation did not at that time acquire many of the characteristics of a central bank:
* it was not given custody of the cash reserves of the commercial banks
* it had no statutory power to restrict credit, though it could promote it
* the
Bank of Ireland remained the government's banker
* the conditions for influencing credit through open-market operations did not yet exist
* Ireland's external monetary reserves were largely held as external assets of the commercial banks
The mid-1960s saw the Bank take over the normal day-to-day operations of exchange control from the Department of Finance. The Central Bank broadened its activities over the decades, but it remained in effect a currency board until the 1970s. Economist Patrick Honohan evaluates the success of the movement from a currency board to the central bank as follows: 'in contrast to many other post-colonial cases, (the currency board's) demise was not followed by a rapid depreciation and slide into semi-permanent high inflation and lack of convertibility.
Such was the proliferation of small industrial banks and hire purchase firms in the late 1960s, the 1971 Central Bank Act introduced significantly enhanced authorisation and supervision standards. In the inevitable consolidation in the marketplace, in 1976 a liquidator was appointed to Irish Trust Bank Ltd after Central Bank investigations and in 1982 Merchant Banking Ltd also collapsed.
Decimalization to European integration (1971–1978)
The 1970s was a decade of change, which began with the decimalisation of the currency which came into effect on 15 February 1971, when the decimal coinage was released into circulation (although 5p, 10p, and 50p coins were released a few years earlier, as they had exact equivalents in old currency units). Decimalisation would have provided an ideal opportunity to break the link with the Pound Sterling, but there was not much demand for this at that time. In 1972 however, the
Bretton Woods system of fixed exchange rates broke down, and in the wake of the 1973 oil crisis inflation in Britain increased dramatically, and economic theory would suggest that a smaller economy whose currency is pegged to a larger one will suffer the larger economy's inflation rate. At the same time moves to create a money market in
Dublin
Dublin (; , or ) is the capital and largest city of Ireland. On a bay at the mouth of the River Liffey, it is in the province of Leinster, bordered on the south by the Dublin Mountains, a part of the Wicklow Mountains range. At the 2016 c ...
and the transfer in 1968 of the commercial banks' Pound Sterling assets to the Central Bank made it possible to contemplate a break in the link. In the mid to late 1970s, opinion within the bank was moving toward breaking the link with the Pound Sterling and devaluing the Irish currency in order to limit inflationary effects from abroad.
The EMS and movement toward a single currency
At this time, however, an alternative option became available. In April 1978, the
European Council meeting in
Copenhagen
Copenhagen ( or .; da, København ) is the capital and most populous city of Denmark, with a proper population of around 815.000 in the last quarter of 2022; and some 1.370,000 in the urban area; and the wider Copenhagen metropolitan ar ...
decided to create a "zone of monetary stability" in Europe, and
European Economic Community institutions were invited to consider how to create such a zone. At the following Council meeting in
Bremen, Germany in June 1978 the basic features of the
European Monetary System
The European Monetary System (EMS) was a multilateral adjustable exchange rate agreement in which most of the nations of the European Economic Community (EEC) linked their currencies to prevent large fluctuations in relative value. It was initiate ...
were outlined, including the creation of the ECU – ''
European Currency Unit
The European Currency Unit (, ; , ECU, or XEU) was a unit of account used by the European Economic Community and composed of a basket of member country currencies. The ECU came in to operation on 13 March 1979 and was assigned the ISO 42 ...
'', a basket of the Community's currencies used to determine exchange rates, and the forerunner of the
Euro
The euro ( symbol: €; code: EUR) is the official currency of 19 out of the member states of the European Union (EU). This group of states is known as the eurozone or, officially, the euro area, and includes about 340 million citizens . ...
.
The Irish government had to decide whether or not to participate in the EMS. If the EMS had included all the
European Economic Community's currencies, it would have provided stability for 75% of Ireland's external trade, but Britain, which still accounted for 50% of Ireland's external trade, decided to stay out of the EMS. Despite this, on 15 December 1978, it was announced that Ireland would participate in the EMS. Countries were given the option of either a 2.25% or 6% margin of fluctuation within the EMS' Exchange Rate Mechanism (ERM), and Ireland took the narrower margin. The EMS started on 13 March 1979, and towards the end of the month the Pound Sterling started to gain in value against the EMS currencies because of rising oil prices, and by 30 March the Pound Sterling breached the upper fluctuation band limit of the
Belgian franc and the Irish currency could no longer track the Pound Sterling. After over 50 years, the parity of the Irish and British currencies was broken, and the Irish currency became known as the
Irish pound (or Punt in the
Irish language
Irish ( Standard Irish: ), also known as Gaelic, is a Goidelic language of the Insular Celtic branch of the Celtic language family, which is a part of the Indo-European language family. Irish is indigenous to the island of Ireland and was ...
).
The initial experience of the EMS was disappointing. It had been expected that the Irish Pound would appreciate in value against the Pound Sterling, and hence reduce inflation in Ireland, but in practice, Sterling appreciated considerably in value thanks to its status as a
petrocurrency
Petrocurrency (or petrodollar) is a word used with three distinct meanings, often confused:
#Dollars paid to oil-producing nations (petrodollar recycling)—a term invented in the 1970s meaning trading surpluses of oil-producing nations.
#Currenci ...
and to the tight monetary policies of the new British government of
Margaret Thatcher
Margaret Hilda Thatcher, Baroness Thatcher (; 13 October 19258 April 2013) was Prime Minister of the United Kingdom from 1979 to 1990 and Leader of the Conservative Party from 1975 to 1990. She was the first female British prime ...
. By late 1980 the Irish Pound had fallen in value to less than 80 British pence, and Irish inflation was higher than British. Economic policy in Ireland was inconsistent with a "hard currency" policy, and the Irish Pound also failed to hold its value against the central rate of the Deutschmark, although it did appreciate in value against some of the other EMS currencies.
Eventually, the EMS settled down (notwithstanding a crisis in 1992 when the Irish Pound was devalued by 10%), and Irish inflation was the same or lower than Britain's inflation rate from 1987 onwards.
Towards the Euro
The idea of a single European currency goes back to the
Schumann Plan of 1950. The first blueprint for how to go about implementing the currency, the Werner Report of 1970 was not proceeded with, but the ultimate aim was always kept in mind. The ''Delors Report'' endorsed by the Madrid Summit of June 1989 envisaged a three-stage process to monetary union, and this was given legal authority by the
Maastricht Treaty
The Treaty on European Union, commonly known as the Maastricht Treaty, is the foundation treaty of the European Union (EU). Concluded in 1992 between the then-twelve Member state of the European Union, member states of the European Communities, ...
of 1992 (enacted into Irish law as the Eleventh Amendment to the
Constitution of Ireland
The Constitution of Ireland ( ga, Bunreacht na hÉireann, ) is the fundamental law of Ireland. It asserts the national sovereignty of the Irish people. The constitution, based on a system of representative democracy, is broadly within the traditi ...
by 70% of those voting in a referendum on 18 June 1992). This envisaged the start of monetary union on 1 January 1999 and the introduction of notes and coins on 1 January 2002.
The Central Bank began production of euro coins in September 1999 in the
Currency Centre
The Currency Centre (also known as the Irish Mint) is the mint of coins and printer of banknotes for the Central Bank of Ireland, including the euro currency. The centre is located in Sandyford, Dublin, Ireland. The centre does not print the ...
(Irish Mint) in
Sandyford
Sandyford () is a suburb of Dublin, located in Dún Laoghaire–Rathdown, Ireland.
Sandyford Business District makes up much of the suburb and encompasses 4 business parks: Sandyford Business Park, Stillorgan Business Park, Central Park and S ...
, producing over a billion coins, weighing about 5,000 tons, with a value of €230 million before the introduction into circulation of the euro coins in January 2002. Production of euro banknotes began in June 2000, with 300 million notes worth €4 billion being produced in denominations of 5, 10, 20, 50, and 100 euros. Euro banknotes produced for the Central Bank are identified by having the serial number beginning with the letter T. The Bank did not initially issue €200 or €500 notes but has since begun to do so.
Domestic banking crisis
![Ireland bond prices](https://upload.wikimedia.org/wikipedia/commons/0/0c/Ireland_bond_prices.webp)
The Central Bank noted in November 2005 that an overvaluation existed of 40% to 60% in the Irish residential property market. Minutes of a meeting with the
OECD
The Organisation for Economic Co-operation and Development (OECD; french: Organisation de coopération et de développement économiques, ''OCDE'') is an intergovernmental organisation with 38 member countries, founded in 1961 to stimulate e ...
indicated that while the Central Bank agreed that Irish property was overvalued it was fearful of precipitating a crash by "putting a number on it". Senior
Allied Irish Bank officials expressed concerns in 2006 that Central Bank stress tests were "not stressful enough". The management ignored warnings from its own financial stability unit, according to one former staff member, whose evidence to the parliamentary inquiry was questioned by a number of other staff members, and from the
Economic and Social Research Institute
The Economic and Social Research Institute is an Irish research institute founded in 1960 to provide evidence-based research used to inform public policy debate and decision-making. The research of the institute focuses on the areas of sustaina ...
about the scale of bank loans to property speculators and developers leading to key information being suppressed. It was reported that it sought to gag a prominent economist from talking about the fragile state of the nation's banks in relation the Irish branch of Northern Rock. The Central Bank "watered down" economic warnings about the property bubble in the run-up to the crash, blocked internal communication reaching board level due to the political interests, and "rigorously" concealed data from the relevant external supervisors on the large exposures of Irish banks to individual developers.
In November 2007, they stated: "The Irish banking system continues to be well-placed to withstand adverse economic and sectoral developments in the short to medium term. The underlying fundamentals of the residential market continue to appear strong and the current trend in monthly price developments does not imply a sharp correction. The central scenario, therefore, is for a soft landing."
After the bubble burst, Irish banks faced mounting losses which exposed them to a collapse of confidence following the
Lehman Brothers
Lehman Brothers Holdings Inc. ( ) was an American global financial services firm founded in 1847. Before filing for bankruptcy in 2008, Lehman was the fourth-largest investment bank in the United States (behind Goldman Sachs, Morgan Stanley, a ...
bankruptcy in September 2008; they then suffered acute liquidity pressures which had to be met by Central Bank support, including emergency lending. Management abuses were also revealed at
Anglo Irish Bank
Anglo Irish Bank was an Irish bank headquartered in Dublin from 1964 to 2011. It began to wind down after nationalisation in 2009. In July 2011 Anglo Irish merged with the Irish Nationwide Building Society, forming a new company named the Iri ...
, which had to be nationalised in January 2009.
The Central Bank annual report, published three months before the Irish State unconditionally guaranteed the deposits of Irish-owned banks, said: "The banks have negligible exposure to the sub-prime sector and they remain relatively healthy by the standard measures of capital, profitability and asset quality. This has been confirmed by the stress testing exercises we have carried out with the banks".
The next annual report had little to say about how and why the Irish banking system collapsed. Although there were four Central Bank directors on the board of the
Financial Regulator
Financial regulation is a form of regulation or supervision, which subjects financial institutions to certain requirements, restrictions and guidelines, aiming to maintain the stability and integrity of the financial system. This may be handled ...
, the Central Bank maintained it had no powers to intervene in the market. Yet, the Central Bank had the power to issue directives to the
Financial Regulator
Financial regulation is a form of regulation or supervision, which subjects financial institutions to certain requirements, restrictions and guidelines, aiming to maintain the stability and integrity of the financial system. This may be handled ...
if it thought it was conducting its business in a way that was contrary to overall Central Bank policy aims. None were issued.
The regulator's processes and reports, and the findings of external scrutineers, any of which should have raised red flags, failed to do so. As a result, they did not see the enormity of the risks being taken by the banks and the calamity that was to overwhelm them.
The European Commission in a November 2010 review of the financial crisis said: "Some national supervisory authorities failed dramatically. We know that in Ireland there was almost no supervision of the large banks." Two months later, the President of the EU Commission in an angry exchange in the
European Parliament
The European Parliament (EP) is one of the legislative bodies of the European Union and one of its seven institutions. Together with the Council of the European Union (known as the Council and informally as the Council of Ministers), it adopts ...
, with a vehemence that shocked his audience, said that "the problems of Ireland were created by the irresponsible financial behaviour of some Irish institutions, and by the lack of supervision in the Irish market."
Separation of regulation – The Financial Regulator
In 2003 a new separate division of the Central Bank, with its own chairman, chief executive, and board, was established as the
Irish Financial Services Regulatory Authority. This was a compromise between those who favoured a fully independent regulator and those who believed the Central Bank should maintain full control of regulation of the financial services industry. This division of the Bank authorised and regulated all financial institutions (including insurance undertakings, collective investment funds and
credit unions
A credit union, a type of financial institution similar to a commercial bank, is a member-owned nonprofit financial cooperative. Credit unions generally provide services to members similar to retail banks, including deposit accounts, provision ...
) in Ireland. The "Central Bank of Ireland" was formally renamed Central Bank and Financial Services Authority of Ireland (CBFSAI). (There was no entity named "Financial Services Authority of Ireland".)
Under the 2003 arrangements, the Central Bank provided the Financial Regulator with services. The Regulator's industry panel, which provided the Regulator with feedback on its charges and policies said in April 2007 that they had "major concerns with the quality and cost of the services" provided to the Regulator by the Central Bank.
The operations of the Financial Regulator were severely criticised in a report marked "strictly confidential and not for publication", as being poor value for money. The report stated that there were too few specialist staff, compared with its peers. There were also serious shortcomings in the crucial supervisory area. and the report was particularly critical of the regulator's senior management structure, concluding that a clear management and oversight framework, which ensures that issues are escalated through the organisation, was "not fully in place".
Former
Taoiseach
The Taoiseach is the head of government, or prime minister, of Ireland. The office is appointed by the president of Ireland upon the nomination of Dáil Éireann (the lower house of the Oireachtas, Ireland's national legislature) and the o ...
Bertie Ahern
Bartholomew Patrick "Bertie" Ahern (born 12 September 1951) is an Irish former Fianna Fáil politician who served as Taoiseach from 1997 to 2008, Leader of Fianna Fáil from 1994 to 2008, Leader of the Opposition from 1994 to 1997, Tánaiste a ...
, said that his decision in 2001 to create a new financial regulator was one of the main reasons for the collapse of the Irish banking sector and "if I had a chance again I wouldn't do it". Ahern said: "The banks were irresponsible. But the Central Bank and the Financial Regulator seemed happy. They were never into us saying – ever – 'Listen, we must put legislation and control on the banks'. That never happened."
In April 2010, the new Financial Regulator, outlined his shock at the poor level of
financial regulation he discovered when he started his job the previous January and "it is clear to me we need to undertake a fundamental overhaul of the regulatory model for financial services in Ireland." He also said that there was a "critical absence of intellectual firepower within his staff".
Following the banking collapse of 2008 and 2009, the Government re-unified the organisation under a Central Bank of Ireland Commission to replace the board structures of the Central Bank and the Financial Services Regulatory Authority which became effective on 1 October 2010. The name "Central Bank of Ireland" was restored. A July 2009 editorial in the ''
Sunday Business Post'' said "returning the key powers of regulation to the Central Bank will be useless unless there is a fundamental change in the culture of the organisation. This does not require a complete change of personnel, but a change of key personnel." There can be no denying that the spinning off of the Financial Regulator from the functions of the Central Bank in 2003, was an outright failure.
Post crisis reforms
On 4 November 2014 the
European Central Bank
The European Central Bank (ECB) is the prime component of the monetary Eurosystem and the European System of Central Banks (ESCB) as well as one of seven institutions of the European Union. It is one of the world's most important centr ...
formally took supervisory control over the biggest banks in Europe, including those in Ireland. While banking supervision staff in the Central Bank of Ireland remained, a pan-European approach to how banks were supervised was introduced, the Single Supervisory Mechanism.
Subsequent to the parliamentary inquiry into the domestic banking crisis the organization said that the actions taken by the Central Bank combined with legislative reform and an overhaul of international regulation have enabled the organization to deliver effective supervision and financial stability measures since the crisis. Governor Philip Lane said, "The report describes a failure to identify risks to financial stability and recognizes the lack of an overall European framework to deal with the financial and fiscal crises. Many of the issues identified by the Inquiry relating to the Central Bank have been substantially addressed or continue to be addressed through measures including significant institutional reform, additional powers, the promotion of a culture of challenge and the implementation of the model of assertive risk-based supervision underpinned by a credible threat of enforcement."
In early 2015 the Central Bank introduced macro-prudential mortgage regulations to increase the resilience of the banking and household sectors to the property market and to reduce the risk of bank credit and house price spirals from developing in the future.
These measures are to be reviewed annually, with the first report published in November 2016.
In response to the July 2016
leprechaun economics
Leprechaun economics was a term coined by economist Paul Krugman to describe the 26.3 per cent rise in Irish 2015 GDP, later revised to 34.4 per cent, in a 12 July 2016 publication by the Irish Central Statistics Office (CSO), restating 2015 ...
affair, on the request of the
Central Statistics Office ("CSO"), the Governor of the Central Bank chaired a cross economic steering group (Economic Statistics Review Group, or "ESRG") including the
IFAC,
ESRI
Esri (; Environmental Systems Research Institute) is an American multinational geographic information system (GIS) software company. It is best known for its ArcGIS products. With a 43% market share, Esri is the world's leading supplier of GIS ...
,
NTMA
The National Treasury Management Agency (NTMA) ( ga, Gníomhaireacht Bainistíochta an Chisteáin Náisiúnta) is the agency that manages the assets and liabilities of the Government of Ireland. It was established on 1 December 1990 to borrow for ...
, leading academics and the
Department of Finance, to recommend new economic statistics to the CSO, that would better represent the Irish economy (given the escalating distortions in GDP and GNP). The result was the introduction of "
modified GNI" (or GNI*)
Report Site of the ESRG 2016 Modified GNI* is 70% of 2016 GDP (or 2016 GDP is 143% of 2016 GNI*).
Historical archives and data
The Central Bank opened its
archives
An archive is an accumulation of historical records or materials – in any medium – or the physical facility in which they are located.
Archives contain primary source documents that have accumulated over the course of an individual or ...
to the public in 2017 operating a
30 year rule for the release of records. The archives can be accessed by means of the Banks online
finding aid
A finding aid, in the context of archival science, is an organization tool, a document containing detailed, indexed, and processed metadata and other information about a specific collection of records within an archive. Finding aids often consist o ...
and consulted in the Bank's North Wall Quay premises in Dublin.
The bank releases data on the changing wealth of Irish households.
Responsibilities
![Central Bank of Ireland](https://upload.wikimedia.org/wikipedia/commons/c/c6/Central_Bank_of_Ireland.JPG)
The Central Bank of Ireland's mandate calls on it to contribute to the well-being of the people of Ireland and more widely in Europe by performing statutory responsibilities which cover a wide range, including :
* price stability;
* financial stability;
* consumer protection;
* supervision and enforcement;
* regulatory policy development;
* payment, settlement and currency systems operations and oversight;
* the provision of economic advice and financial statistics; and
* the recovery and resolution of distressed financial services firms.
Governors
![Central Bank of Ireland](https://upload.wikimedia.org/wikipedia/commons/c/c6/Central_Bank_of_Ireland.JPG)
The Governor of the Bank is appointed by the
President of Ireland
The president of Ireland ( ga, Uachtarán na hÉireann) is the head of state of Ireland and the supreme commander of the Irish Defence Forces.
The president holds office for seven years, and can be elected for a maximum of two terms.Constitu ...
on the
constitutional advice
In constitutional law, advice is a formal and usually binding instruction given by one constitutional officer of state to another. Particularly in parliamentary systems of government, heads of state often act on the basis of advice issued by prime ...
of the
Government of Ireland
The Government of Ireland ( ga, Rialtas na hÉireann) is the cabinet that exercises executive authority in Ireland.
The Constitution of Ireland vests executive authority in a government which is headed by the , the head of government. The gover ...
.
Criticisms
![Michael Noonan (crop)](https://upload.wikimedia.org/wikipedia/commons/0/0f/Michael_Noonan_%28crop%29.jpg)
Recurrent criticisms were made both before and after the Irish
banking crisis
A bank run or run on the bank occurs when many clients withdraw their money from a bank, because they believe the bank may cease to function in the near future. In other words, it is when, in a fractional-reserve banking system (where banks no ...
, of the Central Bank of Ireland.
As seen in the Irish
banking crisis
A bank run or run on the bank occurs when many clients withdraw their money from a bank, because they believe the bank may cease to function in the near future. In other words, it is when, in a fractional-reserve banking system (where banks no ...
, when global markets are stressed, several of these issues can occur simultaneously (i.e. they are not independent risks), to amplify the seriousness of the situation. While the pre-crisis Central Bank of Ireland was judged to fail on all these criticisms,
the Irish State had the financial resources to
bail out
A bailout is the provision of financial help to a corporation or country which otherwise would be on the brink of bankruptcy.
A bailout differs from the term ''bail-in'' (coined in 2010) under which the bondholders or depositors of global sy ...
the Irish banking system (Ireland was almost debt-free before the crisis).
Post the 2011–bailout, the Irish State has a debt-to-GNI* ratio of over 100%,
and will not be able to withstand such a material failing by the Central Bank of Ireland again. A recurrence would place the Irish banking system, and the Irish State, into creditor restructuring.
Green jersey agenda
In 2016, several Irish bank CEOs testified to being asked by senior officials of the Central Bank during 2007–2011 to follow a "
green jersey agenda" in obfuscating the facts of Ireland's deteriorating banking system.
[Judge ruled that it would not be right or practical to try to stop the Jury hearing about the "green jersey agenda".] After the 2011–bailout by the EU–ECB–IMF (e.g. the
European troika
The troika is a term used to refer to the single decision group created by three entities, the European Commission (EC), the European Central Bank (ECB) and the International Monetary Fund (IMF). It was formed in the aftermath of the European de ...
) of the Irish banking system, a number of non–Irish senior executives were placed in the Central Bank of Ireland, including the Board of the Bank. However, by 2017, almost all these non–Irish executives had departed the Central Bank, and some have publicised concerns about the Central Bank's tendency to push aside risk-management in pursuit of political and Government objectives.
Mortgage controls post crisis
The Irish
Celtic Tiger
The "Celtic Tiger" ( ga, An Tíogar Ceilteach) is a term referring to the economy of Ireland from the mid-1990s to the late 2000s, a period of rapid real economic growth fuelled by foreign direct investment. The boom was dampened by a subseque ...
era was typified by large, interest-only mortgages, at high levels of loan-to-income values. After the 2011 bailout, the Central Bank introduced macro–prudential controls on mortgage lending both in terms of loan-to-value (a cap of 80% and 90% depending on circumstances), and loan-to-income (a cap of 3.5 times income).
A limited number of exemptions to these are available to Irish banks for both of these rules on an annual basis. Additionally, the Irish Government introduced a Help To Buy scheme, which allows first-time buyers to receive 5% of the cost price of a house as an income tax rebate – which loosened the LTI requirements further for eligible first-time buyers. The Irish financial crisis showed the small and unusual nature of Ireland's economy (e.g. where a small number of U.S. corporates are
80% of Irish tax, 25% of Irish labour, 25 of top 50 Irish firms, and 57% of Irish value-add), led to foreign banks rapidly withdrawing capital from Ireland in times of stress.
Light-touch regulation
In 2017, it was shown that brochures of
IFSC services firms market Ireland as a "light-touch" regulatory regime.
The Central Bank itself was paying rent to a US distressed debt-landlord who was using a Central Bank-regulated
ICAV
Qualifying Investor Alternative Investment Fund or QIAIF is a Central Bank of Ireland regulatory classification established in 2013 for Ireland's five tax-free legal structures for holding assets. The Irish Collective Asset-management Vehicle ...
structure to avoid all Irish taxes. In February 2018, the Central Bank expanded the little-used
L–QIAIF
Qualifying Investor Alternative Investment Fund or QIAIF is a Central Bank of Ireland regulatory classification established in 2013 for Ireland's five tax-free legal structures for holding assets. The Irish Collective Asset-management Vehicle ...
vehicle to give the tax benefits as Section 110 SPVs but without requiring public accounts for the Irish
CRO, which was how the abuses above were uncovered. In June 2018, the Central Bank reported that distressed debt funds switched €55 billion, or 25% of Irish
GNI*, out of Section 110 SPVs, and presumably into
L–QIAIFs. Such actions have been highlighted as those of a "
captured state" by tax-experts.
Distorted economic data
![Ireland Trade Good Discrepancy (1995-2017)](https://upload.wikimedia.org/wikipedia/commons/a/a9/Ireland_Trade_Good_Discrepancy_%281995-2017%29.png)
Research in June 2018 confirmed that Ireland, already a "
major tax haven", was the world's largest tax haven.
In common with all
tax havens
A tax is a compulsory financial charge or some other type of levy imposed on a taxpayer (an individual or legal entity) by a governmental organization in order to fund government spending and various public expenditures (regional, local, or ...
, Ireland's economic data is distorted by the
BEPS flows from tax management activities.
The top–10
GDP-per-capita countries, excluding natural resource countries, are all tax havens (see
GDP-per-capita and tax havens).
This was shown dramatically in July 2016 during "
leprechaun economics
Leprechaun economics was a term coined by economist Paul Krugman to describe the 26.3 per cent rise in Irish 2015 GDP, later revised to 34.4 per cent, in a 12 July 2016 publication by the Irish Central Statistics Office (CSO), restating 2015 ...
" affair when Apple re-structured its
Double Irish
The Double Irish arrangement was a base erosion and profit shifting (BEPS) corporate tax avoidance tool used mostly by United States multinationals since the late 1980s to avoid corporate taxation on non-U.S. profits. It was the largest tax ...
BEPS tool, as agreed under an ongoing
EU tax-investigation into Apple in Ireland, into a new Irish
CAIA arrangement
The Double Irish arrangement was a base erosion and profit shifting (BEPS) corporate tax avoidance tool used mostly by United States multinationals since the late 1980s to avoid corporate taxation on non-U.S. profits. It was the largest tax ...
BEPS tool.
![EUROSTAT Ireland Gross Operating Surplus by Controlling Country, €million 2015](https://upload.wikimedia.org/wikipedia/commons/8/8b/EUROSTAT_Ireland_Gross_Operating_Surplus_by_Controlling_Country%2C_%E2%82%ACmillion_2015.png)
Exaggerated credit cycles are a documented feature of tax havens as global capital markets misprice the "headline" debt-to-GDP in benign times, only to reprice aggressively in less benign times, leading to a credit crisis (discussed in
tax haven credit cycles).
In 2017, the Central Bank of Ireland responded to this issue, post-leprehaun economics, by introducing
Modified gross national income
Modified gross national income, Modified GNI or GNI* was created by the Central Bank of Ireland in February 2017 as a new way to measure the Irish economy, and Irish indebtedness, due to the increasing distortion that the base erosion and prof ...
(or GNI*), as a more appropriate measure for Ireland's economy.
The issues post-leprechaun economics, and "Modified GNI", are captured on page 34 of the OECD 2018 Ireland survey:
Commercial property bubbles
![Dublin Office sales price, as a multiple of cost of build, versus EU-28 (2016)](https://upload.wikimedia.org/wikipedia/commons/c/cb/Dublin_Office_sales_price%2C_as_a_multiple_of_cost_of_build%2C_versus_EU-28_%282016%29.jpg)
Ireland's status as a "
major tax haven", and its exposure to a
handful of major U.S. multinationals, mean that its commercial property market is prone to overinflating. This effect is amplified because the Irish State enables foreign investors to pay no taxes on Irish commercial property via the Central Bank regulated
QIAIFs (and
ICAV
Qualifying Investor Alternative Investment Fund or QIAIF is a Central Bank of Ireland regulatory classification established in 2013 for Ireland's five tax-free legal structures for holding assets. The Irish Collective Asset-management Vehicle ...
s in particular). The ratio of the value of prime office in Dublin, to its cost-of-build, is the second-largest in the
Eurozone
The euro area, commonly called eurozone (EZ), is a currency union of 19 member states of the European Union (EU) that have adopted the euro ( €) as their primary currency and sole legal tender, and have thus fully implemented EMU polici ...
, and only exceeded by Paris. Irish office rents are close to London City office rents.
Irish banks are the main lending institutions to Irish commercial property, and thus most exposed to material price distortions. As was seen in the Irish
banking crisis
A bank run or run on the bank occurs when many clients withdraw their money from a bank, because they believe the bank may cease to function in the near future. In other words, it is when, in a fractional-reserve banking system (where banks no ...
, when global conditions weaken and the demand for Irish office space falls, the drop in Irish commercial valuations is more extreme than other markets. When this occurs in-sync with a global repricing of Irish credit, from a realisation of the level of artificial distortion in Irish economic data, the effects are further amplified. This risk was highlighted in 2014 when the Central Bank consulted the
European Systemic Risk Board
The European Systemic Risk Board () is a group established on 16 December 2010 in response to the ongoing financial crisis. It is tasked with the macro-prudential oversight of the financial system within the European Union in order to contrib ...
("ESRB") after lobbying by IFSC tax-law firms to expand the
L–QIAIF
Qualifying Investor Alternative Investment Fund or QIAIF is a Central Bank of Ireland regulatory classification established in 2013 for Ireland's five tax-free legal structures for holding assets. The Irish Collective Asset-management Vehicle ...
vehicle. While the Central Bank agreed with the ESRB in 2014, it changed its mind in 2018, and decided to materially expand the L–QIAIFs vehicle (see ).
![Dublin Office sales price versus EU-28 (2016)](https://upload.wikimedia.org/wikipedia/commons/0/07/Dublin_Office_sales_price_versus_EU-28_%282016%29.jpg)
The longer-term risks of Irish commercial property were further increased with the U.S.
Tax Cuts and Jobs Act of 2017
The Act to provide for reconciliation pursuant to titles II and V of the concurrent resolution on the budget for fiscal year 2018, , is a congressional revenue act of the United States originally introduced in Congress as the Tax Cuts and Jobs A ...
, which fundamentally reduces the attractiveness of Ireland to U.S. multinationals, and could see Ireland lose its status as the
major U.S. corporate tax haven.
Control of total credit
Irish and the tendency to commercial and residential property bubbles has led to periods when Ireland's economy was over-leveraged and reliant on foreign capital. The ability of foreign capital to use Ireland's
tax haven
A tax is a compulsory financial charge or some other type of levy imposed on a taxpayer (an individual or legal entity) by a governmental organization in order to fund government spending and various public expenditures (regional, local, or n ...
tools (
IP–based BEPS tools, and
Debt–based BEPS tools) to avoid Irish taxes, attracts further non-domestic credit. It has been shown that smaller countries with a high proportion of non–domestic capital are prone to severe credit cycles.
To resolve this imbalance in the 2007–2012 Irish financial crisis, Irish private-sector debt was transferred to Irish public-sector debt.
The result is that Ireland is now one of the EU–28's most leveraged countries on a private and public sector basis (when measured GNI or per-Capita measures, to limit the distortion by Irish GDP).
This means that the Irish State will not be able to bail out its banking system again for a considerable time.
During the 2008–2012 global credit crisis, reports showed Ireland's combined public and private sector credit as being the highest in the OECD (some reports added in IFSC SPV credit producing higher, but misleading, figures). In this regard, the Central Bank now tracks private and public credit in Ireland in its quarterly bulletins. Private credit is tracked on a credit-to-income ratio, while public sector credit is tracked on a debt-to-GNI* ratio. In addition, as part of the post-crisis reforms, the independent statutory body, the
Irish Fiscal Advisory Council, also reports on Irish leverage (public and private) and its sustainability.
It is still common to see other State bodies (e.g.
NTMA
The National Treasury Management Agency (NTMA) ( ga, Gníomhaireacht Bainistíochta an Chisteáin Náisiúnta) is the agency that manages the assets and liabilities of the Government of Ireland. It was established on 1 December 1990 to borrow for ...
and
IDA Ireland
Industrial Development Agency (IDA Ireland) ( ga, An Ghníomhaireacht Forbartha Tionscail) is the agency responsible for the attraction and retention of inward foreign direct investment (FDI) into Ireland. The agency was founded in 1949 as the ...
) present the distorted, and misleading, Debt-to-GDP data in their reports.
See also
*
Banknotes of the Republic of Ireland
*
Coins of Ireland
Irish coins have been issued by a variety of local and national authorities, the ancient provincial Kings and High Kings of Ireland, the Kingdom of Ireland (1541–1801), the United Kingdom of Great Britain and Ireland (1801–1922), the Irish Fr ...
*
Economy of the Republic of Ireland
The economy of the Republic of Ireland is a highly developed knowledge economy, focused on services in high-tech, life sciences, financial services and agribusiness, including agrifood. Ireland is an open economy (3rd on the Index of Economic ...
*
European Central Bank
The European Central Bank (ECB) is the prime component of the monetary Eurosystem and the European System of Central Banks (ESCB) as well as one of seven institutions of the European Union. It is one of the world's most important centr ...
*
Irish pound
*
Irish modified GNI (or GNI star)
Modified gross national income, Modified GNI or GNI* was created by the Central Bank of Ireland in February 2017 as a new way to measure the Irish economy, and Irish indebtedness, due to the increasing distortion that the base erosion and prof ...
*
Irish Fiscal Advisory Council
*
Green Jersey Agenda
*
Ireland as a tax haven
Ireland has been labelled as a tax haven or corporate tax haven in multiple financial reports, an allegation which the state has rejected in response. Ireland is on all academic " tax haven lists", including the , and tax NGOs. Ireland does no ...
References
External links
*
*
*
{{DEFAULTSORT:Central Bank And Financial Services Authority Of Ireland
Regulation in Ireland
Government agencies of the Republic of Ireland
Ireland
Ireland ( ; ga, Éire ; Ulster Scots dialect, Ulster-Scots: ) is an island in the Atlantic Ocean, North Atlantic Ocean, in Northwestern Europe, north-western Europe. It is separated from Great Britain to its east by the North Channel (Grea ...
Banks of Ireland
Banks established in 1943
Ireland
Ireland ( ; ga, Éire ; Ulster Scots dialect, Ulster-Scots: ) is an island in the Atlantic Ocean, North Atlantic Ocean, in Northwestern Europe, north-western Europe. It is separated from Great Britain to its east by the North Channel (Grea ...
Ireland
Ireland ( ; ga, Éire ; Ulster Scots dialect, Ulster-Scots: ) is an island in the Atlantic Ocean, North Atlantic Ocean, in Northwestern Europe, north-western Europe. It is separated from Great Britain to its east by the North Channel (Grea ...
1943 establishments in Ireland
Dublin Docklands