, universal banking can be a very profitable business, not least because, when banks fail, their creditors are often bailed out by government. anticipating this, investors require a smaller premium to fund the bank. the value of this implicit government guarantee can be significant, especially during market turbulence. ireland in ireland for the past five years banking has not been profitable. this is largely because of the difficulty banks have had in coping with the legacy assets on their books. a large proportion of these assets yield little by way of interest because of the low euro area money market rates to which their yield is contractually set. a large and – at least until very recently – growing, share of the assets is also not fully performing. the irish banks have set aside, and will still need to set aside, sizable provisions to enable them to absorb the inevitable credit losses on some of this portfolio, as it becomes more evident what part of the loans cannot be paid in full, and since the property - related collaterals that backed the loans at the outset no longer suffice as a backstop. faced with these problems, some foreign - owned banks, whose parents also are weakened by the crisis, have decided to withdraw from the irish market, either altogether or from large segments of it. two significant irish - controlled banks – anglo and inbs – have been liquidated. two others, aib and ebs, have been merged. aside from the group of exportoriented banking firms operating in the export - oriented ifsc context, the banking landscape is now much sparser than it was. the ability of irish banks to make their full contribution to financial services needed for the recovery and into the longer term depends on their being fully repaired after the far - reaching damage wreaked in the boom and its aftermath. much has been done here already in terms of recapitalisation, deleveraging and reduction in the cost base. but the case - by - case resolution of impaired loans, both for the sme sector and the household sector, still has a long way to go. at last there are clear indications that the operational processes put in place bis central bankers ’ speeches to accomplish this goal are gaining traction and that the problem can finally be brought under control. what will irish banking look like at the end of the decade ; what would we like it to look like? for the sake of argument i will assume that the legacy issues will by then have been put behind us. official policies and the mandates and

church ( and later to agriculture ), depositing the balance in the london money market for much of that interval. i have pointed out elsewhere that the convergence of ireland to the frontier of european living standards in the last decade of the old millennium owed little to financing from the irish banks. perhaps this reflection means that our ambitions should be modest. if the banks can manage to accelerate their processing of the large backlog of troubled legacy debt into sustainable solutions, much of what is needed to restore their health will have been achieved. if in addition the funding of their low - yielding tracker portfolio could be enhanced ( something for which technical solutions have been devised, but require wider official european agreement that does not seem likely to be forthcoming in the short - run ), then, when combined with the credit union restructuring framework being implemented by the credit union restructuring board ( rebo ), the foundations would be well laid for the long - term rehabilitation and repositioning of the banking sector. technological changes will of course influence the operations and image of banking in the future. i have spoken only briefly about such aspects. such factors may not be as strong in a period of reconstruction than they were in the run - up to the crisis, where over - reliance was placed on risk management models and automated credit approval processes. but anyway that was not the flaw that caused the irish banking collapse. its converse, traditional relationship banking based on the lender understanding both the needs and the creditworthiness of customers, is in effect what was mishandled in ireland during the exuberant years but is inevitably what we have to re - learn to ensure the recovery of the irish economy. bis central bankers ’ speeches