McMunn: Capital, competition, complexity shape regulatory debate
Mary-Elizabeth McMunn, Deputy Governor for Financial Regulation at the Central Bank of Ireland, outlined regulatory perspectives on capital, competition, and complexity. Speaking at an event hosted by BPFI, she emphasized the importance of robust capital levels and a nuanced view of competition in the Irish banking sector.
Defending robust capital levels
Deputy Governor McMunn stressed the critical role of a resilient, well-capitalised banking sector for economic stability.
She noted robust capital enables banks to absorb shocks, a strength evident in Irish and EU banks during the 2020s' turbulence.
McMunn firmly rejected calls for lowering capital requirements, deeming them deregulation.
She reiterated the Eurosystem's principle, endorsed last December, that any changes to the EU prudential framework must sustain current resilience.
McMunn countered arguments that reduced capital would boost credit, profitability, or international competitiveness.
She cited ample capital headroom (over 600bps in Ireland, nearly 500bps in the EU) and robust credit growth (c.3% in the euro area, over 6% in Ireland).
She also highlighted strong bank profitability (return on equity above 10%) and ECB research showing US large banks face higher capital requirements than European counterparts, dismantling arguments for lower capital.
Rethinking competition in Irish banking
McMunn addressed competition within the Irish banking sector, acknowledging concerns following the exit of two retail banks.
She argued that assessing market structure solely by domestic retail banks is incomplete due to the evolving financial system.
The lending market now includes foreign banks, non-bank lenders, and credit unions.
Central Bank of Ireland research, utilizing granular loan-level data from the Central Credit Register and published today, offers a more nuanced perspective.
This analysis reveals that in business lending and consumer credit, the presence of these diverse lenders significantly reduces estimates of market concentration, challenging the perception of limited competition in the Irish loan market.
A timely defense of stability
Deputy Governor McMunn delivers a robust, data-backed defense of current regulatory stances, challenging calls for reduced capital.
This firm stance underscores the Central Bank of Ireland's unwavering commitment to financial stability, prioritizing resilience.
The speech, with new research on competition, offers crucial insights into the evolving Irish lending landscape.