McMunn: Capital rules crucial for resilience, not credit

Deputy Governor Mary-Elizabeth McMunn firmly believes a resilient, stable, and well-capitalised banking sector benefits consumers, banks, investors, and the economy.

She highlighted that robust capital positions are fundamental for the safety and soundness of banks, enabling them to absorb shocks rather than amplify them.

McMunn pushed back against calls for lowering capital requirements, arguing that such moves sound more like deregulation.

She cited the Eurosystem's principle, endorsed last December, that any changes to the EU prudential banking framework must sustain current resilience levels.

Data shows significant headroom above regulatory requirements (over 600bps in Ireland, nearly 500bps in the EU), suggesting capital is not unduly constraining credit growth (3% in euro area, 6% in Ireland) or profitability (ROE above 10%).

McMunn addressed concerns about competition in the Irish retail banking sector, acknowledging the impact of two full-service bank exits.

However, she argued that focusing solely on domestic retail banks provides an incomplete assessment of market structure.

The Central Bank of Ireland’s analysis, using granular loan-level data from the Central Credit Register, reveals a more nuanced picture.

This research, published today, shows that when foreign banks, non-bank lenders, and credit unions are included, estimates of market concentration in business lending and consumer credit are significantly reduced, indicating a more diverse lending market.