Furthermore, the continuing dislocation – to date – in the transmission of monetary policy throughout the euro area presents banks in stressed countries like Ireland with profitability challenges, especially in respect of tracker mortgages (whose running yield is tied to the ECB policy rate).
Since March 2011, economic conditions (both in Ireland and in Ireland’s main international trading partners) have generally been worse than the base case employed in PCAR2011, but rather better than the stress case. Of course in the coming years the implementation of Basel 3 will also lead to higher capital ratios.