The banking crisis in Ireland

Patrizia Baudino, Diarmuid Murphy and Jean-Philippe Svoronos in this BIS WP:

This paper covers the banking crisis in Ireland that started in 2008, which stemmed from a combination of macroeconomic developments, risky bank practices and unsustainable fiscal policies. In line with the scope of this series, the paper focuses on the policy response. This involved the restructuring of the banking sector, requiring measures to restore bank capital, address asset quality issues and ensure the provision of funding.

Several rounds of stress tests, deleveraging plans and the provision of central bank liquidity, as well as the creation of an asset management company, were among the key measures put in place.

The Irish banking crisis offers important lessons. One is the need to recognise the limits of emergency liquidity assistance and the boundary between such assistance and fiscal support. Others concern bank restructuring and the best modalities for it. Finally, some legacy issues remain, for instance those related to the remaining stock of non-performing assets.

The main lesson is: avoid getting into a banking crisis at the first place.


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