What caused the Irish banking crisis?
Journal of Financial Regulation and Compliance
ISSN: 1358-1988
Article publication date: 27 July 2010
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
:Emerald Group Publishing Limited
Copyright © 2010, Emerald Group Publishing Limited