Thomas Lyons The Central Bank of Ireland is closely monitoring the potential spillover risks in the aftermath of the collapse of Silicon Valley Bank (SVB). While the impact of the bank’s failure on the Irish financial system is minimal, the technology sector in both Ireland and globally could be affected. The Financial Stability Group has been informed that some Irish tech firms may experience liquidity issues and loss of credit, including credit card facilities. The failure has caused broader market turbulence, affecting the value of banking stocks internationally and domestically. The Central Bank is actively monitoring broader spillover risks.
The Financial Stability Group met on March 16 and was informed that the banking turmoil, which had at that stage affected Credit Suisse, was being closely watched. The Central Bank is examining the channels of potential spillover to the Irish financial sector, including credit institutions and funds. The IDA is in open dialogue with a broad base of its technology clients, particularly those in the emerging/scaling category. Enterprise Ireland has also been made aware of issues for some of its client companies. However, the exact details of these issues have been redacted from the Department of Finance records that were released under FOI.
On March 21, a meeting of the Financial Stability Group was briefed on the financial markets turmoil and global banking concerns. An internal presentation showed that Irish banks were as liquid as banks could be today, with very sticky deposit franchises. The Central Bank and the European Central Bank (ECB) have substantial cash balances. Interest rate risk in bond portfolios is largely hedged, while asset growth and risk-taking have been very subdued. Investors see Ireland as a safe place within Europe. The only direct impact of the banking turmoil so far has been a fall in the share prices of Irish banks from recent highs. This reflects a reassessment of profitability over the next few years as the ECB may not go as high as previously thought.
According to a Department of Finance information note, the collapse of SVB occurred for a number of very specific reasons. The note stated that there was no direct read-across to the Irish banking sector. However, it would not help with the cost of a large planned debt issuance by Permanent TSB in the coming months. The note warned that this is a volatile environment where vulnerable businesses and investors can become exposed and contagion risk is very real. There has been huge volatility in Irish bank shares caused by the fallout from SVB’s collapse, with price fluctuations of up to 8% daily. However, officials are optimistic that Irish banks are insulated as they are very heavily biased towards retail deposits. In addition, the information note said competition was limited in Ireland, with deposits still growing strongly and nothing material in terms of deposit migration.
The Central Bank is actively monitoring the situation and is prepared to take action if necessary to protect the stability of the Irish financial system. While the direct exposure of the Irish financial system to SVB is minimal, the potential for broader spillover risks remains a concern. The Central Bank is working closely with other regulators and stakeholders to assess the situation and take appropriate measures to mitigate any potential risks.
