The Central Bank has a clear responsibility to address the implications of Brexit for the financial system. This includes taking a rigorous and efficient approach to the authorisation and supervision of firms seeking to set up or expand operations in Ireland. It also includes assessing and mitigating the financial stability risks associated with disorderly Brexit scenarios.
Whatever form of Brexit materialises, the economic impact on Ireland will be negative and material. Uncertainty remains regarding the extent of the impact, which will depend on the timing and nature of the changes to trading arrangements as well as the capacity of the economy to adjust to the new arrangements.
Economic risks arise from direct exposures to the UK market but there are also indirect exposures. For example, many firms in Ireland are vulnerable to interruptions in international supply chains and increased competition from UK firms in the event of a further sharp fall in sterling.
If a disorderly Brexit scenario results in an extended period of uncertainty about the future UK-EU relationship it would have a chilling effect on investment plans and be associated with a decline in a broad range of asset prices.
A "hard" Brexit – whereby the UK reverts to trading on World Trade Organisation rules – would have the most severe negative impact on the Irish economy.
However, even a more favourable Brexit outcome, with a free-trade deal or customs union type arrangement, would result in a loss of output in the Irish economy and higher unemployment.
As March 2019 draws closer, the resolution of the current uncertainty about the nature of the future UK-EU relationship has the potential to generate further economic and financial volatility, especially if there is an increasing likelihood of a harder version of Brexit.