Deputy Governor Donnery: Lessons from the crisis 10 years on – Ireland learned the hard way

• History tells us we must always be on guard and keep the lessons of the crisis to the fore.
• Macro-prudential tools, such as the mortgage measures, could have limited the scale of the downturn and reduced the high cost to citizens.
• The crisis showed the need for cross border authorities. Whilst the establishment of the Single Supervisory Mechanism and Single Resolution Mechanism have been a success, further work is necessary to sustain Banking Union

Speaking at the Dublin Economics Workshop in Wexford, Sharon Donnery, Deputy Governor of the Central Bank of Ireland, outlined five key lessons from the Irish financial crisis. The Deputy Governor began her remarks by saying: “Whilst not unique to the Irish experience, some are lessons which we in Ireland learned, to devastating effect, the ‘hard way’.”

The five lessons outlined in the speech are:

• The need to mitigate the build-up of systemic risk, with both macro-prudential and micro-prudential policy tools.
• The need for all sectors of the economy – banks, individuals, households, businesses and government – to build resilience.
• The type and quality of regulatory capital, and not just the level, are important for banks.
• Whilst some banks will inevitably fail, in order to protect taxpayers, we must actively prepare for their failure and ensure that impediments to resolvability are removed.
• The crisis showed the need for cross-border authorities, but further work must be undertaken to sustain the Banking Union.

Introducing her remarks, Deputy Governor Donnery said: “The crisis affected every aspect of Irish society, of the Irish economy, of the Irish banking system. A decade later, significant numbers of people across the country are still dealing with its legacies.”

When discussing the macroprudential framework, Deputy Governor Donnery spoke about the Countercyclical Capital Buffer and the Other Systemically Important Institutions buffer. On the issue of the mortgage measures, she added: “We are very conscious that the deposit requirements are a heavy burden on many people trying to build for their future, but there is, I think, a public understanding that as hard as that is, these measures are necessary and better than the alternative.” “While the use of macro-prudential tools may not have averted the crisis a decade ago, the scale of the downturn in Ireland could have been limited and the high cost to citizens reduced,” she said. 

She concluded by saying: “We should keep the lessons from the crisis to the forefront of our mind, in our work, in our thinking, and in our communications. Then, our combined efforts to highlight and address risks and build resilience will make the financial system stronger and safer, thereby safeguarding stability and protecting consumers.”