john hurley : protecting the stability of the irish financial system statement by mr john hurley, governor of the central bank & financial services authority of ireland, dublin, 3 october 2008. * * * the government decision to guarantee depositors in and lenders to irish financial institutions was taken to protect the stability of the domestic financial system. it does this by supporting the irish banking system ’ s ability to secure access to funds both domestically and internationally. the government ’ s decision was taken after close consultation with the central bank and financial regulator. for over a year now, the central bank has been monitoring the disruption in international financial markets. this was triggered by difficulties in the us subprime mortgage market and resulted in a protracted drying up of liquidity in a range of markets. despite central bank actions, both at eurosystem and global levels, to inject liquidity to improve the functioning of money markets, these markets have become increasingly impaired. the net effect was that banks internationally found it difficult, and expensive, to obtain term funding. the access of the irish banking system to term funding was affected in a similar way to their international peers. the pressures became particularly acute during recent weeks following difficulties in state - sponsored financial institutions, investment and high - street banks both in the us and then europe, and over the last weekend the failure to pass the us legislation. these events came to a head last monday evening when the supply of funding to the irish banking system was seriously threatened. at that time, i had to inform the minister that the risks to financial stability were becoming unacceptably high with knock - on effects for the wider economy. a major consideration was that the highly concentrated nature of the irish banking system created a high risk of contagion. decisive action to protect the stability of the economy and its financial system was needed. while the decision was difficult, it was aimed at ensuring renewed access to funding for irish financial institutions. the irish banking system, unlike many of its international peers, has not to date had to write - off significant losses on loans and investments so that bad debts and loan losses were not the key issues for our financial system last monday evening. the issue then was the unprecedented shortage of liquidity in financial markets and the urgent need to implement a solution that targeted that issue directly. the legislation giving effect to the government ’ s decision was signed into law yesterday. over the coming days, the central bank together with our colleagues in the financial regulator will be advising government on how the

incumbent firms, the central bank considers these issues in a number of different ways, working from the top down through the lenses of strategy, governance, oversight, risk management, and so on ; and from the bottom up focusing on the management of the technology itself, and the broader topic of operational resilience. the central bank also aims to keep abreast of the emerging trends brought about by technological innovation so that we can identify, understand and manage the risks these changes present. while today i will speak about financial innovation, digital transformation and disruptive technology, it is important to stress that the rules and principles of regulation and supervision apply to all the firms we regulate, regardless of the technology they deploy. our focus rather, is to ensure that where innovation facilitates new and better solutions, it does so in a framework which does not prevent regulators from meeting their mandates and strategic responsibilities. the central bank ’ s approach to financial innovation the central bank is proactively seeking to understand and anticipate how innovation is changing financial services provision. we consider this from financial stability, monetary policy, payments system, prudential supervision, market conduct and consumer protection perspectives. we need to understand the threats to the sustainability of existing business models, how technology is driving change to them, the business models of potential new entrants and the wider implications for the financial services system and consumers of financial services and products. supervision of existing firms the central bank is responsible for the prudential and conduct regulation and supervision of regulated firms. our prudential supervisors seek, in part, to ensure that regulated firms have sustainable business models and that they are well run, appropriately governed, have effective risk management and control functions and effective cultures. in this way, we can increase the financial resilience of the system and individual firms, a fundamental aspect of protecting consumers. the central bank has significantly enhanced the intensity and intrusiveness of its supervision of it related risk across the financial services sector. identified issues are required to be resolved through risk mitigation programmes and we will continue to issue thematic findings from our work to highlight areas for improvement for all firms so that their foundations are sufficiently strong to effectively manage the technology risks. where necessary we have used our powers to sanction failures and required the use of third parties to help drive improvements. innovation hub2 the central bank of ireland launched its fintech and innovation engagement initiative in 2018. a key feature of this initiative is the central bank ’ s innovation hub, launched in