‘Policy makers and property market participants must learn from the past’ - Central Bank Chief Economist

30 Nov 2015 Press Release

  • Risks to financial stability are less acute following enhanced macro- and micro-prudential policies

  • More cautious behaviour diminishes the risk to financial stability

  • A greater role for equity financing acknowledged

Full speech here.

The Irish banking crisis was among the most severe on record since World War II, yet, while the scale differs, the Irish experience is not unique.

Speaking at the 2nd Annual Sunday Business Post Property Summit today, the Central Bank’s Chief Economist, Gabriel Fagan, said: “The sheer costs of credit-fuelled property booms and busts impose an obligation both on property market participants and policymakers to act in ways which avoid a repetition of such deleterious outcomes.”

When considering whether the property market would have the same impact on financial stability in the future he said: “more cautious behaviour, in and of itself, clearly diminishes risks to financial stability emanating in the property market.

“However, the evidence also suggests that memories fade with the passage of time as a new generation, which has not experienced crisis, comes on stream. Hence, though more cautious behaviour by market participants is important, it would be unwise to rely on enduring changes to behaviour to avoid future risks to financial stability.”

He also noted that: “the risks to financial stability emanating from the property market are likely to be less acute than was the case in the past. The risks could be reduced still further by changes in the market which are on the agenda of this conference. Of particularly relevance here are proposals to increase the role of equity as against debt finance in the property sector, both commercial and residential.”

He highlighted that macroprudential policies and more intensive and intrusive supervision of banks by the Central Bank and Single Supervisory Mechanism will also reduce risks to financial stability emanating from the property market.