Interconnectedness of the Irish banking sector with the global financial system

Financial innovation and closer integration of international financial systems have created an environment where banks are highly connected, with each other and with the global financial system. These connections can have both positive and negative effects and understanding these interlinkages is an important area of focus for policymakers. While a full understanding of the connections within the wider financial system is constrained by a lack of complete data, regulatory data sources for the banking sector provide a wealth of information which can be used to analyse the interlinkages of this sector. This article examines a number of regulatory data sources to assess how interconnected Irish-authorised banks (both domestic and international) are with the financial system. It finds that banks with a domestic retail focus have much lower levels of interconnectedness with the financial sector than the internationally-focussed foreign-owned banks, at least partly due to the intragroup exposures of the latter. An analysis of the network of bilateral interbank credit exposures using available data shows that this network is relatively sparse, with just a few key hubs, all of which are large global banks. However, the available data do not capture all exposures and future data collection enhancements will be important for further analysis.