Research analyses Irish banks’ connections to global financial system

Irish banks differ in their degree of interconnectedness with the global financial sector, but still have large exposures to the Irish property and construction sectors, an article published in the Central Bank of Ireland's latest quarterly bulletin argues.

In "Interconnectedness of the Irish banking sector with the global financial system", Niamh Hallissey analyses the networks present in the Irish banking sector. Hallissey uses data – including material from the Bank for International Settlements – to estimate the connections between different banks authorised to operate in Ireland, and between the banks and the global financial system.

There are marked differences between "domestically focused" and "internationally focused" banks operating within Ireland, Hallissey finds. The former have much lower levels of interconnectedness with the wider financial sector than the latter. "Internationally focused" banks in Ireland are linked to the financial system largely by a "few key hubs", all of which have been identified as large and systemically important global banks.

Both types of bank, however, have made a "large" proportion of their loans to the Irish real estate and construction sectors, Hallissey notes. "Domestically focused banks in particular remain vulnerable to shocks in these sectors," she finds.