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Central Bank to assess commercial property-focused funds

The Central Bank will conduct a “deep dive” into the role of property funds in the domestic commercial real estate sector and assess whether a macroprudential response is needed to any potential risks, Governor Gabriel Makhlouf said today.

Research from the Central Bank showed that Irish investment funds now account for more than 35% of the rapidly growing commercial real estate market, having invested a total of €18 billion in property and land here

“My prime motivation is to understand much, much more and shine a light on exactly what’s going on because one thing I want to absolutely avoid is getting on the back foot if something happens and it has an impact on the financial system as a whole,” Mr Makhlouf told a news conference today.

The Central Bank also announced that it would not force lenders here to hold more capital under two buffers it levies on them – the countercyclical capital buffer (CCyB) and Other Systemically Important Institutions (O-SIIs).

Under the O-SIIs, banks identified as systemically important to the domestic economy because of their size and market share must hold additional capital. 

Barclays and Bank of America were designated as O-SIIs for the first time today after they moved significant operations to Ireland as a result of Brexit. 

The bank’s Irish subsidiaries will have to set aside 0.75% of risk-weighted assets. 

Meanwhile, UniCredit and Depfa Bank’s Irish units are no longer designated as O-SIIs, the Central Bank said.

Central Bank Governor Gabriel Makhlouf, one of the newest members of the European Central Bank’s Governing Council, also said today that negative interest rates were an effective measure.

But he added that that they would be more effective if governments backed them up with fiscal measures. 

“Are negative rates working? I think they are working, which is why the governning council took the decisions it did back in September,” Mr Makhlouf told today’s news conference in Dublin.

“The point that Mr Draghi made at the time is that monetary policy would work much more effectively if it was supported by other tools, in particularly fiscal tools,” he added.

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