Opinion by Governor Gabriel Makhlouf in Sunday Independent

Published in the Sunday Independent on 22 March 2020

We are truly living in extraordinary times. The Covid-19 pandemic is a public health emergency with few precedents in history. We all appreciate the exceptional efforts by Ireland’s health professionals and our wider public service in facing this challenge. Lives are at risk and the response requires unprecedented action by all governments across the EU. It needs to be forceful, co-ordinated, ambitious and urgent. It needs every EU government and every EU institution to play its part. We need to have trust and confidence in each other, to deal with the pandemic and to manage the recovery that will come.

The key focus now is working to make sure health systems can cope and people get through this together.

In addition to the public health emergency, Covid-19 is also putting livelihoods at risk. Households and businesses across the country are worried on two fronts – about the health of family, friends and loved ones and about their financial futures.

The spread of COVID-19 is a major shock to the economy in Ireland, the euro area and globally. Its impact is already being felt in homes and businesses around the country. In recent weeks many businesses have closed and thousands of people have lost their jobs, causing considerable distress and hardship for those affected. Unfortunately, many more will be affected in the weeks ahead.

The impact of the pandemic, and the measures to mitigate it, will have significant economic consequences and at this stage we do not know precisely what shape these will take. We do know effects of Covid-19 will be different to that of the financial crisis a decade ago. Part of the economy is essentially shutting down for a period.

While the containment measures now in place to ‘flatten the curve’ are necessary, and our best possible chance to reduce the impact on human life, they will have a significant impact in economic terms, particularly on tourism, transport and recreational services. How people live their daily lives has changed and this affects how we spend our time and our money. Demand for some goods and services is down or, in some instances gone entirely, at least for now. This means companies and businesses have to let people go, they are investing less in goods and machinery, and people are spending less money in shops.

The Central Bank, working with other central banks and regulators across Europe, is playing its part to reduce the economic harm to businesses and households in the country. Our mission is to serve the public interest by safeguarding monetary and financial stability and by working to ensure that the financial system operates in the best interests of consumers and the wider economy. Believe me when I say that we, too, will spare no effort to contain the economic effects of the crisis and do everything in our power to protect consumers, households and firms. We have already taken significant action. Together with the European Central Bank, we are making immense financial firepower available in a bid to ensure that the economic shock will be no longer and no deeper than it needs to be. This complements the fiscal measures announced by Government over the last two weeks.

At a European level, this week the Governing Council of the European Central Bank (of which I am a member) announced a new Pandemic Emergency Purchase Programme with an envelope of €750 billion until the end of the year. This is on top of the €120 billion we announced earlier in the month. At national level, the Government has introduced substantial measures and brought emergency legislation through the Dáil to offer, amongst other things, greater protections to renters.

Our job in the Central Bank is to protect consumers and ensure that our financial system remains stable in this uncertain time. We are doing everything in our power to make these issues in the economy and impact on the financial system are managed and minimised, so the economy can recover as quickly as possible.

We have moved swiftly in recent days to take action to improve the flow of credit to banks for the benefit of households and businesses. These new measures, including the release of the counter cyclical capital buffer, will result in smoother access to credit for those who need it at this challenging time. We have been clear with the banks that we expect them to use this increase in available capital solely in support of their customers and the economy and not for dividend distributions.

The introduction of capital buffers, is something the Central Bank has been focused on as part of building up Ireland’s financial system resilience over the last decade. That we have these buffers in place, to use when needed, is of real benefit to us all at times like this.

The team in the Central Bank and I are also working with financial services providers to make sure that those people who - through no fault of their own - lose their job, get sick, or have to care for loved ones, have some breathing space when it comes to their financial commitments. Banks are introducing three-month payment breaks on mortgages, and personal and business loans, for some business and personal customers affected by COVID-19. We expect that all mortgage lenders, including non-banks, will introduce this measure. We will continue to maintain oversight of the firms we regulate, in line with our mission, to help ensure this happens.

We are also working with lenders to develop practical measures so that the credit record of those who avail of a payment break includes an appropriate recording on the Central Credit Register so that their credit record is protected.

Every economy needs a resilient financial system. Our job is to make sure that the system works well for everyone, and that consumers are protected, particularly those who may experience financial difficulties. A significant amount of work has been undertaken since the financial crisis a decade ago to make sure the system became more resilient and to improve how consumers and investors are protected. That resilience and those protections were built for moments like this. So that, when shocks hit, the financial system is better able to support households and businesses and so that people in distress are protected.

People are right to focus on the immediate public health issues now. We also need to see through this shock. When the recovery comes, and it will come, we need to make sure we have a financial system that continues to serve households, businesses and the economy more widely.