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Assessing the financial risks and buffers of the Central Bank

Oct 11, 2018
The Central Bank of Ireland has published a signed article from the fourth Quarterly Bulletin of 2018, which was published on 12 October 2018. The article, Assessing the Financial Risks and Buffers of the Central Bank, by David Doran, Ruth Gleeson, Steve Kilkenny and Šarūnas Ramanauskas, examines how risks to the Central Bank of Ireland's balance sheet and financial buffers are managed.

In doing so, the article considers the changes to euro area national central banks' (NCBs) balance sheets in recent years and the role of capital and financial buffers for central banks.

The key findings are:
  • There are clear arguments for managing financial risks and maintaining positive financial buffers in central banks: to preserve financial independence, to help ensure policy effectiveness and to retain credibility;
  • NCBs' balance sheets and risks have increased substantially in recent years, which requires enhanced risk measurement tools. The Central Bank of Ireland has similarly developed its risk measurement tools during this period, including a new internal framework which incorporates a multi-year risk-based assessment of the Central Bank's financial buffers position; and
  • As the sizeable profits seen recently at the Central Bank of Ireland normalise in the coming years, the Central Bank will be constrained in its ability to materially increase its capital and reserves. The recent practice of retaining the maximum allowable percentage of profits (20%) under domestic regulations, along with other provisioning measures, will help ensure an appropriate level of overall financial buffers. These measures will contribute to the Central Bank's financial resilience and protect its continued independence in the years ahead.
Source: Central Bank of Ireland.