Global risks intensify, CBI maintains capital buffer
Central Bank of Ireland Governor Gabriel Makhlouf presented the Financial Stability Review, noting intensified global risks from energy prices, AI-related stocks, and private credit. The CBI maintains the Countercyclical Capital Buffer at 1.5 percent to preserve resilience.
Energy, AI, and private credit risks
Global risks to the domestic financial system have intensified in 2026, primarily from the pricing and sustainability of global energy supplies following the Middle East conflict.
This shock, combined with a weakened global growth outlook and increased inflationary pressures, heightens the potential for systemic tail risks and a sudden tightening of global financial conditions.
The growing role of highly leveraged non-bank financial intermediaries amplifies this vulnerability.
Pre-existing fragilities include high valuations for AI-related stocks, which could face a market correction if the macro-financial outlook deteriorates.
The increasing use of debt and circular deals for AI investments, along with private and public credit markets used by software and AI companies, creates new contagion channels.
Private credit markets, particularly in the United States, are under scrutiny for valuations, asset quality, and liquidity, leading to redemptions in some funds.
An evolving cybersecurity landscape, driven by geopolitical tensions and AI developments, also demands continuous operational resilience from the financial system.
CBI strengthens resilience with capital buffer
Countering higher external risks, the domestic financial system shows accumulated resilience, with strong aggregate balance sheets and modest leverage.
Robust domestic economic growth and the multinational sector's performance have provided a significant buffer.
The Central Bank of Ireland (CBI) promotes financial system resilience through prudential policies, focusing on operational resilience, prudent lending standards, and maintaining loss-absorbing capital and liquidity buffers.
While the domestic banking system has limited direct exposures to core private credit or US large technology company equities, it is not immune to second-round effects from market shocks.
Therefore, the CBI is maintaining the Countercyclical Capital Buffer rate at 1.5 percent to preserve this resilience.
The uncertain environment highlights the importance of global regulatory standards and international financial stability cooperation.