Strategic plan for Ireland revealed

The Central Bank of Ireland revealed a blueprint for bolstering its regulatory and supervisory framework in its strategic plan for 2013–15, published on November 20.

The plan prioritises an exit from the joint EU-IMF programme of financial support at the end of 2013, which includes bank restructuring and reorganisation in the country as well as fiscal policy and structural reform.

In developing its new regulatory and supervisory framework, the central bank will fully deploy its new probability risk and impact system (Prism), the plan said. The system categorises every financial institution into one of four ‘impact' groups, depending on the level of damage it could cause to the financial system, economy and consumers were it to fail.

The higher the impact, the greater the level of engagement the supervisor has with that institution. Institutions with a high or medium level of impact receive report cards and to-do lists, as supervisors form judgements and develop risk mitigation programmes.

Prism was first applied to banks in 2011 and then extended to investment firms and credit unions this year. The restructuring and resolution of the credit union sector will also be one of the central bank's key objectives over the three-year period. The central banks said Prism will allow it to "robustly" challenge credit unions where it believes business models may be unrealistic.

The central bank will also develop a strategy of reactive management for low-impact institutions under Prism, the plan said, as the data analysis of online returns will become automated.

Under Prism, the central bank will take enforcement action against any institutions – regardless of impact – if their actions are deemed to affect the achievement of its statutory objectives.

The Central Bank (Supervision and Enforcement) Bill 2011 is due to be enacted in 2013, which the plan said will bestow the central bank with new powers to impose directions on credit and financial institution. In addition, it will increase the level of administrative sanctions and penalties at its disposal.

Another goal revealed in the plan is to shape both the national and international policy agenda through high-quality research.

The global financial crisis exposed the failings of macroeconomic models, the plan observed, and highlighted the need for a more competent modelling of the relationship between the real and financial sectors of the economy.

The central bank has agreed a three-year project with the Economic and Social Research Institute, based in Dublin, to develop modern models that can be used to inform future policy decisions. "This project is of critical importance to both organisations, particularly in light of the current challenges and will be of significant benefit to domestic policy-makers," the plan said.

A broad theme for the period will be improved operational efficiency and cost effectiveness, the plan said, to be achieved through a host of measures including budget control and process automation. After the recent period of expansion, this will include the "gradual reduction" of resources in 2015, it added.