Dr. Conor O'Toole:

There were two questions there, one on the banking sector. I will add my voice to what Dr. McQuinn mentioned. On the US banking sector challenges, the failure of SVB appears to have been one of those cases of a typical maturity mismatch, a bank run, coupled with management failures and the concentration of risk, particularly in the ICT sector. That is the kind of scenario that has taken banks out for centuries. That is the risk they carry when they do a maturity mismatch.

The long-term effects, in particular with SVB and with the Irish economy being so exposed to the ICT sector is that if the failure of that bank leads to a global increase in risk premia, and a global tightening of financial conditions for productive firms in the ICT sector, that we would get to a stage where credit to the sector would be rationed and over time investment in the sector drops. That could have longer term implications for the productive capacity of the US economy and for these firms on a more global basis. The broader sector can reprice the risk. It can say that ICT firms are riskier than they were and that is a potential risk to the long-term scarring of the productive capacity if those financial constraints come up. There is no evidence of that yet, but that is a particular risk.

It certainly does appear that it is an extremely fast-moving scenario. It is often very difficult to see how these chains of contagion unravel in funding structures for banks. They can look fine and then suddenly they start to unravel quickly. It does appear that the situation in the US at the present moment has been contained with some of the measures that have been put in place, but that could change very quickly.

The Irish banks are much better capitalised than they were at the onset of the financial crisis, so this is not a case of us having a domestic credit boom that has gone wrong and having a banking sector that is exposed to that. This is an international issue. We are much better capitalised. We have better funding structures than we did before so while there is always a risk, it is certainly a much more resilient sector than we had in the past.

The second question was about the choices for NRF, the so-called rainy day fund.

The risk we see in this is that there are all these receipts, which end up being windfall, the Government is tied into its current expenditure plans and then suddenly there is a gap in the budget if they disappear. The choices with that type of fund are to save the moneys and put them into liquid assets, spend them on infrastructure bottlenecks or use them to pay down debts. Those are the three available choices. If one is thinking about spending them, one has to consider that these are very large funds and to ask whether the economy has the productive capacity at this particular time to absorb the funding to deal with, say, infrastructural bottlenecks in housing, health and the climate transition. They might all be really worthy places to invest in order to deal with bottlenecks, but a long-term plan is needed for how to put that funding into an economy, as Dr. McQuinn said, that is growing relatively quickly at present. These are the policy trade-offs and choices that are available and they should be on the table for consideration in regard to this type of fund.