THE north could be heading towards another financial meltdown, with major banks not having the liquidity to keep the region growing, a Belfast law firm is warning.
Arthur Cox fears a "potentially significant" funding gap, sparked by the UK's exit from the EU, could return the property market to 2008 levels.
The claims have been sparked after global lenders HSBC and UBS said they could each move 1,000 staff from the UK because of Brexit.
And that, says Arthur Cox partner Kieran McGarrigle, could signal the start of a ‘domino effect’ that may lead to a significantly reduced financial sector in the UK.
McGarrigle, who heads up the firm’s finance team, also believes the focus on the RHI scandal has turned attention away from the challenge posed by a lack of liquidity – a challenge that could effectively halt economic growth and deter investors from entering the local market.
He said: “The RHI issue has rightly received a lot of attention politically, but it is not in itself going to cause an economic crisis. There is, however, a real possibility that a crisis could arise due to a lack of future economic liquidity.”
The issue is particularly pertinent to Northern Ireland because of the way financial institutions are regulated, he believes
“The financial services sector is, quite rightly, heavily regulated, but much of that regulation originates from the EU, which we are about to leave," McGarrigle said.
“Currently, if a lender is regulated in the UK, they can operate across Europe, but will these businesses really stay in the UK after we leave the EU? This seems unlikely.
“Northern Ireland is in a unique position in that, although it is based in the UK, some of its major lenders operate from the Republic or other jurisdictions outside the UK. This could have serious implications for Northern Ireland going forward.
“Many of the property and debt transactions in Northern Ireland since 2013 have been financed by international lenders with a base in London. If those lenders re-locate post-Brexit, what appetite will they have for lending in Northern Ireland in the future?”
And McGarrigle fears the issue could plunge Northern Ireland back to crisis levels not seen since the financial crash almost a decade ago.
He said: “We've seen at first hand the effect that a lack of liquidity can have following the banking crisis in the UK and Ireland.
“The demise of Northern Rock, Lehman Brothers and Anglo-Irish Bank, to name but a few, created a liquidity crisis in Northern Ireland that stymied growth and deterred investors and purchasers - all of which are fundamental to a successful economy.
“We exited this crisis period with a significant number of debt portfolio transfers. The debt, which had in part contributed to the liquidity crisis, had a new owner and the economics of those transactions allowed assets to be moved in a way that created a more positive market in Northern Ireland.”
He said it is up to politicians now to work to find a solution to the pending crisis.
“Undoubtedly, Brexit will have a significant impact on this market, but it is currently unclear precisely what that impact will be,” he added.
“Our politicians undoubtedly have the skills and capabilities to meet this challenge, but it will require their focus if it is to be successfully navigated towards a strong economic future.”
