The Regling Watson Preliminary Report on the Sources of Ireland's Banking Crisis can be can also be downloaded below

Ireland’s banking crisis bears the clear imprint of global influences, yet it was in crucial ways

“home-made.” This report aims to clarify how different factors – external and domestic,

macroeconomic and structural – interacted to cause the crisis. On this basis, it seeks to draw policy

lessons, and it also fulfils the mandate of identifying follow-up areas for the planned Commission

of Investigation. It is thus a diagnostic rather than a forensic study; and it aims to complement the

parallel report by Governor Honohan.

In the run-up to Ireland’s crisis, global financial markets featured an extended period of high

liquidity and low risk premia. Monetary conditions in the euro area were also easy relative to the

levels of growth and inflation in Ireland. Financial integration in the euro area was deepening, and

banks in Ireland had unprecedented access to cross-border funding. As in many smaller EU

economies, moreover, the entry of foreign banks intensified competition in lending. Against this

backdrop, it is not surprising that Ireland experienced a strong and extended domestic financial

boom, accompanied by an influx of foreign savings. 

This boom needs to be seen also in the context of Ireland’s strong and extended expansion during

the previous decade, when the economy caught up with and surpassed average EU living standards.

This fostered expectations of a continued rise in living standards and in asset values. Another factor,

with even deeper roots, was the strong and pervasive preference in Irish society for property as an

asset, and the fact that Ireland had never experienced a property crash