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What caused the Irish banking crisis?

K.P.V. O'Sullivan (Department of Government, London School of Economics, London, UK)
Tom Kennedy (Department of Accounting and Finance, Kemmy Business School, University of Limerick, Limerick, Ireland)

Journal of Financial Regulation and Compliance

ISSN: 1358-1988

Article publication date: 27 July 2010

10233

Abstract

Purpose

The purpose of this paper is to explore the Irish banking crisis and explain how various factors contribute to a collapse in asset prices, an economic recession and the near failure of the banking system. The paper seeks to document the dangers of pro‐cyclical monetary and government policies, particularly in an environment of benign financial regulation and pent‐up demand for credit.

Design/methodology/approach

The paper maps the Irish banking crisis against its general background. It describes the roots of the crisis, with particular attention given to government and monetary policies, the practices of the financial regulator and banks during the property bubble, together with the difficulties associated with the international sub‐prime crisis.

Findings

While the global financial crisis exacerbated matters, the banking crisis in Ireland was largely a home‐grown phenomenon. The crisis stemmed from the collapse of the domestic property sector and subsequent contraction in national output. Its root cause can be found in the inadequate risk management practices of the Irish banks and the failure of the financial regulator to supervise these practices effectively.

Originality/value

The paper documents the “Celtic Tiger” phenomenon of the last decade: the Irish economic and property miracle, its sharp decline, and the sub‐prime crisis. It delineates one of the most severe banking and economic crisis in a developed country since the great depression with a number of key policy lessons for rapidly expanding economies.

Keywords

Citation

O'Sullivan, K.P.V. and Kennedy, T. (2010), "What caused the Irish banking crisis?", Journal of Financial Regulation and Compliance, Vol. 18 No. 3, pp. 224-242. https://doi.org/10.1108/13581981011060808

Publisher

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Emerald Group Publishing Limited

Copyright © 2010, Emerald Group Publishing Limited

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