View from Dublin: property bubble warning
The recent good weather wasn't the only thing raising the temperature around Ireland last week. The OECD has warned of a possible property bubble and suggested there may be signs of overheating in the economy.
As if that wasn't enough, the Central Bank deputy governor Sharon Donnery suggested that it may be time to impose on banks a Countercyclical Capital Buffer (CCB).
Currently set at 0%, this can go up to 2.5% of bank's credit exposures. It would mean the banks would have to set aside sizeable chunks of money to help strengthen their balance sheets in the event of a rainy day.
It isn't expected to be enough to seriously curtail their lending, but it could reduce the amount they have available to pay out in dividends to shareholders. In the case of 71% of AIB and 14% of Bank of Ireland, that would see the exchequer losing out.
There are a few things worth noting about all of this overheating. The OECD is looking at the rate of house price growth.
Where there is a shortage of supply, house price inflation is enormous, running at around 13% per year.
It has warned that if it were to continue at that rate it could lead to a bubble - i.e. bubbles burst and prices could fall back. This is kind of stating the obvious and simply getting its warning in early.
There is no real evidence of reckless or turbocharged lending from the banks. New mortgage lending is growing steadily but from a very low base. Our price inflation doesn't appear to be credit-fuelled.
This doesn't mean prices couldn't fall back. It just means that if they levelled and then dropped in value it wouldn't be as calamitous as the last time.
As for the countercyclical CCB, it is a drawback for the State as a major bank shareholder. It really does appear that regulators will not let another banking crisis happen - unless it is in Italy of course, where all of the foundation work has already been laid.
The Central Bank is watching two key criteria in deciding whether there needs to be a CCB put in place. Its main indicator is the "credit gap" - the deviation of the credit-to-GDP ratio from its long run trend.
If available in the past, the maximum CCB would have been applied on the Irish banks in the late 1990s and the peak boom years of the noughties. The fact that our banks qualify again doesn't mean we are in for a repeat of a banking collapse.
In fact, we may only be meeting the criteria now because lending is coming off such a recession period low that it is skewing the numbers.
I could live with a heavy CCB being applied especially given that I am not a direct shareholder in any of the banks.