{"id":19682,"date":"2022-10-30T19:40:23","date_gmt":"2022-10-30T19:40:23","guid":{"rendered":"https:\/\/legalblog.ie\/?p=19682"},"modified":"2024-01-27T20:12:50","modified_gmt":"2024-01-27T20:12:50","slug":"central-bank-to-1990","status":"publish","type":"post","link":"https:\/\/legalblog.ie\/central-bank-to-1990\/","title":{"rendered":"Central Banking to 1990"},"content":{"rendered":"<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_63 counter-hierarchy ez-toc-counter ez-toc-grey ez-toc-container-direction\">\n<div class=\"ez-toc-title-container\">\n<p class=\"ez-toc-title \" >Table of Contents<\/p>\n<span class=\"ez-toc-title-toggle\"><a href=\"#\" class=\"ez-toc-pull-right ez-toc-btn ez-toc-btn-xs ez-toc-btn-default ez-toc-toggle\" aria-label=\"Toggle Table of Content\"><span class=\"ez-toc-js-icon-con\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #999;color:#999\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #999;color:#999\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/span><\/a><\/span><\/div>\n<nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/legalblog.ie\/central-bank-to-1990\/#Central_Bank_Established\" title=\"Central Bank Established\">Central Bank Established<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/legalblog.ie\/central-bank-to-1990\/#Regulation_of_Lending\" title=\"Regulation of Lending\">Regulation of Lending<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/legalblog.ie\/central-bank-to-1990\/#Increased_Regulation_of_Lending\" title=\"Increased Regulation of Lending\">Increased Regulation of Lending<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/legalblog.ie\/central-bank-to-1990\/#Currency_Management\" title=\"Currency Management\">Currency Management<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/legalblog.ie\/central-bank-to-1990\/#Government_Interbank\" title=\"Government &amp; Interbank\">Government &amp; Interbank<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-6\" href=\"https:\/\/legalblog.ie\/central-bank-to-1990\/#Foreign_Exchange\" title=\"Foreign Exchange\">Foreign Exchange<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-7\" href=\"https:\/\/legalblog.ie\/central-bank-to-1990\/#ERM_Break_with_Sterling\" title=\"ERM &amp; Break with Sterling\">ERM &amp; Break with Sterling<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-8\" href=\"https:\/\/legalblog.ie\/central-bank-to-1990\/#Central_Bank_Licensing\" title=\"Central Bank Licensing\">Central Bank Licensing<\/a><\/li><\/ul><\/nav><\/div>\n<h3><span class=\"ez-toc-section\" id=\"Central_Bank_Established\"><\/span>Central Bank Established<span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p>The Central Bank of Ireland was established in 1943 (1942 Act) \u00a0following a Commission Report from 1938.\u00a0 The Central Bank took over the functions of the Currency Commission in 1942, although it did not act as a Central Bank at first.\u00a0 It was given powers to guard the purchasing power of the country and control credit.<\/p>\n<p>From the 1950s onwards, the Central Bank played an increasing role in maintaining the value of the power of the currency. Balance of payments difficulties emerged in the 1950s, which required the Central Banks to take steps to implement monetary policy.<\/p>\n<p>It provided temporary accommodation to clearing banks when there was a sharp contraction in their foreign liquid asset.\u00a0 This was the first time the domestic banks could not rely on their own liquidity.<\/p>\n<h3><span class=\"ez-toc-section\" id=\"Regulation_of_Lending\"><\/span>Regulation of Lending<span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p>The State attempted to keep Irish interest rates artificially low in the 1950s.\u00a0 Bank lending increased at a non-sustainable rate in 1950.<\/p>\n<p>The Central Bank took on a role for the first time.\u00a0 Liquidity standards for banks were introduced in 1958.\u00a0 A minimum level of external assets and Central Bank balances were required relative to their domestic current and deposit account.<\/p>\n<p>From the mid-&#8217;60s to the mid-&#8217;80s, interest rates reflected the international developments.\u00a0 There were quantitative credit guidelines.<\/p>\n<p>In the late 1960s deposits were changing character from representing long-term holdings of wealth to being the equivalent of money for transactions.\u00a0 The Central Bank focused on the total level of lending by all banks.\u00a0 Quantitative limits were extended.\u00a0 Quantitative limits were also put on inflows from abroad.<\/p>\n<p>The bank charged penal interest rates for excessive borrowing and reliance on the Central Bank.<\/p>\n<h3><span class=\"ez-toc-section\" id=\"Increased_Regulation_of_Lending\"><\/span>Increased Regulation of Lending<span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p>Balance of payments problems re-emerged in the 1960s and the Central Bank took on more extensive powers to restrict lending.\u00a0 The Central Bank had relied on the voluntary cooperation of the clearing banks to manage their liquid reserves.<\/p>\n<p>In trying to grips with external payments difficulties, the Central Bank advised banks a about the by the appropriate level of increases in domestic lending.\u00a0 It also consulted with individual banks on their contribution to \u00a0overall credit policies objectives.<\/p>\n<p>There was rapid inflation in the early 1970s and a growth in the domestic budget deficits \u00a0substantially after 1972.\u00a0 Credit guidelines were suspended in 1974.<\/p>\n<p>The Irish pound deteriorated rapidly internationally in line with sterling and inflation continued Inflation increased towards 20 percent in late 1970s with unsustainable budgetary and imbalances over 15 percent of GDP \u00a0and increases of 30 percent in domestic bank credit.<\/p>\n<p>In the late 1970s bank credit guidelines were reintroduced and applied with greater rigour than before\u00a0Penalties were imposed on the banks with respect of excessive lending over that advised, in order to incentivise and place quantitative limits on lending.<\/p>\n<p>The credit guidelines were applied through the mid-&#8217;80s by which time \u00a0oil prices and inflation had lowered substantially and balance of payments was in better condition.<\/p>\n<p>After the late &#8217;80s, Central Bank stopped using direct credit limits and recommenced indirect controls to manage credit policy. This reflected increased mobility of capital and the growing \u00a0differentiation of financial institutions domestically.<\/p>\n<h3><span class=\"ez-toc-section\" id=\"Currency_Management\"><\/span>Currency Management<span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p>In the late 1950s, the clearing \u00a0grew to maintain their domestic clearing accounts with the Central Bank rather than at London. By late 1950s, a third of the external monetary reserves of the country or about one-fifth of domestic accounts were held in the form of foreign liquid assets.<\/p>\n<p>In late 1960s, banks and inflation in the sterling as well as the 1967 devaluation against the dollar saw steps to diversify Sterling external reserves by transferring them to Central Bank for investment in a wider range of currencies. The remaining reserves were transferred in the late 1960. The banks converted their external assets into Irish Pound \u00a0denominated liquid fund.<\/p>\n<h3><span class=\"ez-toc-section\" id=\"Government_Interbank\"><\/span>Government &amp; Interbank<span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p>The Irish gilts market developed from the late 1960s and Central Bank assumed responsibility for issue of bills.\u00a0 Originally gilts were generally held to \u00a0maturity rather than traded to any significant extent.\u00a0 The Central Bank took steps to develop the domestic financial markets seeking to develop an interbank market in Irish pounds.<\/p>\n<p>A greater range of government debt \u00a0from middle, short and long dated gilts were introduced through the &#8217;70s.\u00a0 The domestic gilt market increased further with greater secondary market by the mid-1980s.<\/p>\n<p>The exchequer account was transferred from the Bank of Ireland to \u00a0the Central Bank in 1972.\u00a0 The Central Bank made arrangements with the government to provide overdraft facilities to bridge short-term gaps in the exchequer year. The registers of government securities were transferred in the mid-1970s.<\/p>\n<p>Liquidity ratios was established in 1972. They \u00a0required the banks to hold a portion of their accounts at Central Bank and in Irish government paper.<\/p>\n<h3><span class=\"ez-toc-section\" id=\"Foreign_Exchange\"><\/span>Foreign Exchange<span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p>The Dublin foreign exchange market was developed.\u00a0 In the late 1960s the Central Bank commenced purchasing surplus \u00a0foreign currencies other than sterling directly from the banks and met their demand for foreign currency.\u00a0 This enabled the final rate of exchange to be negotiated in foreign currencies.<\/p>\n<p>The banks took steps to promote interbank dealing in foreign currencies.\u00a0 The foreign exchange market making activities developed in the late 1970.<\/p>\n<h3><span class=\"ez-toc-section\" id=\"ERM_Break_with_Sterling\"><\/span>ERM &amp; Break with Sterling<span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p>The EEC Exchange Rate Mechanism became operative in 1979.\u00a0 The break with \u00a0sterling occurred in March 1979 and the Central Bank adopted a range of methods of intervening and influencing the foreign markets to manage liquidity and assistance.<\/p>\n<p>Following the \u00a0break with \u00a0sterling in March 1979, the Central Bank established an overnight facility for banks settle the \u00a0transfer at the end of each day through the Central Bank. The daily interbank settlement facility was established in 1980.<\/p>\n<p>The Central Bank placed mechanisms for contracting or expanding domestic liquidity asset through the use of temporary swaps of foreign currency.\u00a0 Domestic gilt sales and repurchase arrangement were initiated in 1983 to purchase, provide or absorb liquidity thought the extension or cancellation of short term loan.<\/p>\n<h3><span class=\"ez-toc-section\" id=\"Central_Bank_Licensing\"><\/span>Central Bank Licensing<span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p>After 1972, the existing banks were licensed by the Central Bank.\u00a0 They were obliged to meet a range of standards and requirements set out by the Central Banks.\u00a0 They have been revised and updated from time to time to reflect the banking environment at home and abroad<\/p>\n<p>In 1989, building societies and trustee savings banks were placed under the control of the Central Bank. The bank set prudential \u00a0standards with a view to minimising concentration of lending risk requiring it to hold certain liquid assets and be adequately capitalized and managed.<\/p>\n<p>The Central Bank carried out inspections twice yearly onsite to \u00a0review control systems and performance of management.<\/p>\n<!--themify_builder_content-->\n<div id=\"themify_builder_content-19682\" data-postid=\"19682\" class=\"themify_builder_content themify_builder_content-19682 themify_builder tf_clear\">\n    <\/div>\n<!--\/themify_builder_content-->\n","protected":false},"excerpt":{"rendered":"<p>Central Bank Established The Central Bank of Ireland was established in 1943 (1942 Act) \u00a0following a Commission Report from 1938.\u00a0 The Central Bank took over the functions of the Currency Commission in 1942, although it did not act as a Central Bank at first.\u00a0 It was given powers to guard the purchasing power of the [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_exactmetrics_skip_tracking":false,"_exactmetrics_sitenote_active":false,"_exactmetrics_sitenote_note":"","_exactmetrics_sitenote_category":0,"footnotes":""},"categories":[282],"tags":[],"_links":{"self":[{"href":"https:\/\/legalblog.ie\/wp-json\/wp\/v2\/posts\/19682"}],"collection":[{"href":"https:\/\/legalblog.ie\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/legalblog.ie\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/legalblog.ie\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/legalblog.ie\/wp-json\/wp\/v2\/comments?post=19682"}],"version-history":[{"count":6,"href":"https:\/\/legalblog.ie\/wp-json\/wp\/v2\/posts\/19682\/revisions"}],"predecessor-version":[{"id":31115,"href":"https:\/\/legalblog.ie\/wp-json\/wp\/v2\/posts\/19682\/revisions\/31115"}],"wp:attachment":[{"href":"https:\/\/legalblog.ie\/wp-json\/wp\/v2\/media?parent=19682"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/legalblog.ie\/wp-json\/wp\/v2\/categories?post=19682"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/legalblog.ie\/wp-json\/wp\/v2\/tags?post=19682"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}