Irish banks have been ordered to hold more money for a slowdown

The Central Bank has ordered banks to keep additional funds in reserve to protect against losses and potentially cool the economy.

He unleashed yesterday the so-called countercyclical capital buffer (CCyB).

On July 5, banks will be required to hold an additional capital reserve equivalent to 1 pc of their Irish weighted exposures.

The change requires one year notice to the banks concerned.

The new capital buffer is added to the standard capital that all euro area banks must hold.

As a result of the financial crisis, banks tended to hold more capital in reserve than is strictly necessary under the rules, so this new requirement does not necessarily impede their current state.

But this will limit banks' ability to increase production if they want to take advantage of the market.

This also shows that the regulator will act if it believes that the economy is about to overheat or needs to be protected from a slowdown.

The cushion can be reinforced or loosened depending on economic conditions. Its operation will be reviewed quarterly by the Central Bank.

Central Bank Governor Philip Lane said, "As a small, open economy vulnerable to a range of external risks, [buffer] is an important tool for supporting more stable stability."

Governor Lane said that he was supplementing other tools used to guard against excessive loans such as mortgage ceilings.

The Central Bank has indicated some of the reasons why it had decided on this law provided for an increase in the volume of loans and a rapid growth of the Irish economy, which it believed was close to full capacity.

It also indicated that it was influenced by the volatile nature of the economy. Irish economy and its vulnerability to external shocks

High levels of household debt, as well as high levels of non-performing loans in banks, They were also cited because they exacerbated the risks of slowing the economic cycle.