The Deputy Governor of the Central Bank has said there is a need to look beyond the immediate threat of Brexit and ensure the economy and financial system is resilient to other threats.

Sharon Donnery also expressed the Central Bank’s concerns about a Sinn Féin bill that seeks to ban the sale of mortgages to so-called vulture funds, unless the borrower agrees to the sale.

In a speech to the Institute of International and European Affairs in Dublin, Ms Donnery said Ireland faced a two-pronged threat: the external environment, including a disorderly exit of the UK from the European Union, and the risk of overheating of the domestic economy.

She said that as a small, highly globalised economy, Ireland is particularly vulnerable not only to shocks to the global economic cycle – known as cyclical risks – but also by a range of structural shocks coming from abroad.

These can include changes to global trade patterns or international taxation regimes.

"Risks are prevalent from both inside and out. However, it is important that we are not complacent in thinking that the UK’s departure from the EU is the only risk to the Irish economic outlook."

Following on from sharply downgraded growth forecasts this week from the OECD and the ECB, the Deputy Governor said the external risks to the economy were evident, but the internal risks were less obvious. Chief amongst these was the risk of overheating.

Ms Donnery said economies can grow too fast and overheat, especially where they reach the limits of their capacity.

Households and firms can become over-optimistic about their future income prospects, taking on too much debt.

If this future income fails to materialise, readjusting to a sustainable growth path can be painful.

With Ireland approaching full employment, leaving little spare capacity for further growth, there is a need to guard against the risk that economic conditions give rise to overheating dynamics.

The Deputy Governor continued: "We find ourselves in the interesting position of assessing a potential slowdown in the external international environment, the UK departing the EU, while also worrying about potential overheating from a domestic perspective".

She defended the Central Banks mortgage lending rules as a safeguard against consumers taking on dangerous levels of debt, and said reducing the country’s high debt levels to "safer levels" should remain a priority, in order to build up the capacity to withstand an economic downturn without having to make deep cuts to spending programmes.

The build up of capital buffers in the financial system – under Central Bank guidance – should also ensure the financial system can absorb shocks and does not react in a way that further deepens the economic stress faced by households and firms.

In comments to journalists, Ms Donnery said the Central Bank was concerned about a Sinn Féin bill that would block the sale by banks of non-performing loans to investment funds unless the borrower consented to their loan being sold. 

She said the Central Bank had established strong protections for mortgage borrowers, and had ensured that those protections travelled with the loans if they were sold. 

Ms Donnery also said the Central Bank was not sure how the proposed bill would strengthen consumer protections, and said it was concerned the bill could introduce new difficulties for consumers, particularly those seeking new mortgages. 

Asked if she was a candidate to succeed Central Bank Governor Philip Lane – who is due to be confirmed as a member of the ECB executive board at the EU summit in a fortnight – Ms Donnery said as Governor Lane was still in a process, there was no vacancy to be filled.