The possibility of the UK leaving the European Union was not factored into bank stress tests conducted at the end of 2015, according to minutes from the July meeting of the Central Bank Commission.
Both the International Monetary Fund and the European Banking Authority carried out separate stress tests on European banks last December, which were published at the end of July.
AIB and Bank of Ireland ranked among the worst out of 51 lenders across the EU assessed by the EBA.
When asked at the meeting whether Brexit had featured in any of the scenarios used in the tests, Head of Banking Supervision Analysis Division at the Central Bank Adrian Varley said while “Brexit in itself was not referenced”, the IMF tests “did include a simultaneous shock to both the UK and Irish economies”.
On whether Brexit was factored into its tests, the EBA said they were based on a general macroeconomic downturn scenario over a three-year horizon.
It added that “even after the outcome of the EU referendum in the UK, the three-year shock remains relevant as an analytical tool to understand what happens to banks’ balance sheets if an economic downturn is preceded by an economic shock”.
Following the publication of the EBA stress tests, Minister for Finance Michael Noonan said the design of them was “disproportionately negative” for both AIB and Bank of Ireland.
The issue of interest rate changes in relation to the banks stress tests was also raised at the Central Bank’s July meeting.
The Bank’s Director of Credit Institutions Supervision Ed Sibley said interest rate changes were factored in and Ireland “would remain particularly vulnerable to an interest rate shock”.
