Analysis: Since the early 1990s, the Central Bank has been the boy who cried wolf, warning us about rising risks of a property bubble and a debt crisis. When house prices slowed last year, the crowds decided to go home and the bank's Financial Stability Report of that year concluded that there was no more market for the message.

In that report, the risk of a housing bubble was seen as having receded. And if there was some overvaluation in the market, the Central Bank saw it as likely to be easily correctable.

This year, the bank has returned to form. Its latest stability report, published yesterday, notes how the latest annualised rate of house price increase was 14.8 per cent, twice the rate of growth prevailing at the time of last year's report.

With no shortage of potential house buyers and constrained supply in desirable areas, the fact that lending banks let it all hang out meant house price inflation was destined to take off. Leading Central Bank economist Frank Browne was careful to qualify the bank's point about standards easing.

"Standards here don't mean good standards. They mean criterion for lending. For a lot of people, this is good news." But how realistic is this view? Sure, more liberal lending practices increase the credit available to lenders. But for precisely the same reason, they push up house prices.

One table in the review - the part analysing affordability of housing - examines this question more closely. If its analysis is right, the opposing effects on affordability of looser credit and higher prices have mostly cancelled each other out. Defining affordability as the ability to finance repayments on the average home with less than 40 per cent of disposable income - on a 40-year repayment - it concludes that affordability now is the same as in the mid-1990s and the early 2000s.

What has worsened - dramatically for younger borrowers - is exposure to increases in interest rates. Older borrowers' repayments were calibrated at the higher average interest rates of old and a quarter point hike is small beer for them. For younger borrowers starting life at rates of around 3 per cent, that hike is grievous. "The notion that there wouldn't be pain is what I'm trying to deal with," as Mr Hurley put it.

But for the banking system, yesterday's report constitutes a clean bill of health - so far that is. Solvency - the system's ability to meet its repayment liabilities - remains in excess of regulatory minimums and the level of banking liquidity is above minimum requirements.

The "so far" caveat is important. From a ratio of 160 per cent of personal disposable income last year, private sector credit will by the end of this year jump to 192 per cent, pushing us past the Netherlands and Britain - and to top of the "old" EU - for the first time in our history. And compared to those countries, our range of banking assets is too property centred.

In summary, as far as its position is concerned, Ireland's aggregate financial situation is still okay. As far as its direction is concerned, that's an entirely different matter.