Central Bank rejects claim regulation is blocking Brexit business

The Central Bank has rejected criticism that its overly cautious approach to regulation was hampering the State's ability to attract post-Brexit business.

At the launch of its latest macro-financial review, Central Bank deputy governor Sharon Donnery said the bank's overarching role was about safeguarding stability and providing the appropriate monetary environment.

“Debates about the bank’s role in promotion and attracting industry are not appropriate in light of what happened during the crisis,” she said.

Her comments come in the wake of a letter from Minister for State with special responsibility for financial services Michael D’Arcy, which highlighted the Central Bank’s “unhelpful attitude” to processing Brexit-related investment.

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Mr D’Arcy claimed he had been moved to write the letter, which also criticised the Central Bank’s “unclear processes” for financial firms considering relocating or expanding, after being approached by industry figures on the matter.

Fellow deputy governor Ed Sibley said the Central Bank had been very clear on its approach from the start and “and our approach overall is to make sure we’re operating to European norms”.

“We’ve made sure we have a very clear, very consistent, very transparent approach to authorisation,” he said.

So far, Dublin has attracted some big names in the post-Brexit scramble, including Barclays Bank and JP Morgan but it has also lost out on potential business from US insurer AIG and Lloyds of London.

At the launch of the review, the Central Bank said Brexit continues to pose a “major risk” to the Irish economy despite last week’s deal between the UK and the EU, which appeared to guarantee there would be no return to a hard Border in Ireland.

“The agreement reached between UK and EU negotiators last week is to be welcomed, but Brexit continues to pose a major risk to the Irish economy given that any final deal is still subject to continued negotiations which will be both significant and complex,” Ms Donnery said.

“Without the detail of any final deal, it is prudent that we continue to call out the risks. Sectors such as agri-food and manufactured goods, which are highly dependent on the UK for trade, remain vulnerable,” she added.

While the Irish Government played up UK commitments over the Irish Border following last week’s agreement, the UK’s Brexit secretary David Davis seemed to muddy the waters by suggesting the deal was simply a statement of intent, rather than something legally enforceable.

The Central Bank’s review also noted that a Brexit-related slowdown in the UK economy could negatively affect Irish retail banks’ profitability in the long term, as they continue to have significant exposures in the UK market.

Furthermore, firms relocating to Ireland are “likely to place additional pressure” on an already tight Dublin property market, both in terms of the residential and commercial markets.

“This is coupled with the existing lack of infrastructure in transport and communications identified,” said the review.

The bank said a continuing shortage of housing would exert upward pressure on house prices and rents for some years to come. Furthermore, banks’ loan books “remain concentrated” in property-related lending, leaving banks “vulnerable to adverse developments” in residential and commercial real estate markets.

In the first nine months of 2017, €7.6 billion in new mortgage lending was drawn down, an increase of 16 per cent on the same period in 2016.

In addition, there is a threat of overheating in the economy as the State approaches full employment. The bank said it expected the Irish economy to grow by 4.9 per cent in gross domestic product (GDP) terms this year and by 3.9 per cent next year.