In relation to net international financial flows, Galstyan and Herzberg (2018) find that the most effective risk indicator for Ireland is the stock of net external debt liabilities of domestic banks, with a suggested threshold value of 17 percent of GNI*.2 This strips out the net external debt of internationally-orientated banks, investment funds and multinational firms and recognises the close linkages between cross-border debt flows and domestic credit expansion (Lane and McQuade 2014).
Such a metric would have raised a red flag about Irish external debt by the first quarter of 2004 and peaked at 44 percent in the third quarter of 2008. The Irish retail banks held net external debt assets of around 16 percent at the end of 2017, such that current international balance sheet risk is low.