Risks to financial system are 'intensifying'
Ireland’s financial system faces growing risks from global developments including energy shocks, inflated artificial intelligence valuations and cyber threats, the Central Bank has said in its latest Financial Stability Review (27 May).
The review said that risks to the Irish financial system have intensified due to a worsening international environment, although Ireland is entering the period from a position of strength.
The Central Bank warned that a prolonged conflict in the Middle East could continue to disrupt global energy supplies, leading to higher inflation, weaker economic growth and increased costs for households and businesses in Ireland.
Imported energy
Ireland’s dependence on imported energy and international trade leaves the economy particularly exposed to global shocks.
The review also highlights concerns about high valuations in the artificial intelligence sector, where increasing levels of investment are being financed through debt and private credit markets.
A reassessment of AI-related valuations could have broader economic consequences and create instability in financial markets, it adds.
Cybersecurity risks were also identified as a growing threat amid geopolitical tensions and rapid advances in AI technology.
Vulnerabilities
The review notes that while Government finances remain strong, underlying vulnerabilities persist because budget surpluses rely heavily on corporation tax receipts from multinational firms.
Central Bank Governor Gabriel Makhlouf said Ireland’s economy and financial system had demonstrated resilience through several recent crises but warned the global environment had become increasingly uncertain.
Makhlouf said preserving resilience through strong bank capital buffers, prudent lending standards and robust operational defences was essential to ensure the financial system continued supporting households and businesses.