philip r lane : the " culture report " and the macro financial outlook introductory statement by mr philip r lane, governor of the central bank of ireland, before the joint oireachtas ( national parliament ) committee on finance, public expenditure and reform, and taoiseach ( head of parliament ), dublin, 4 october 2018. * * * chairman, committee members, i welcome the opportunity to meet with you this morning for our regular engagement. i am joined today by derville rowland, director general for financial conduct, and ed sibley, deputy governor for prudential regulation. i divide my introductory statement into two parts. in part a, i provide an update on the tracker mortgage examination and the outcome of our recent report into the behaviour and culture of irish retail banks ( the ‘ culture report ’ ). in part b, i turn to a broad overview of the macrofinancial outlook and outline the main issues and risks we see on the horizon, including nonperforming loans and brexit. the culture report the culture report builds on our conviction that consumers are best protected if firms not only comply with our regulatory requirements but also invest in organisational cultures that reward consumer - focused behaviour and penalise harmful behaviour that seeks to skirt around the duty to treat customers fairly. conduct and tracker mortgage examination the last decade has uncovered financial misconduct scandals in many countries. at home, the mistreatment by banks of so many tracker mortgage customers has shown that financial misconduct is a substantial risk to households and firms that rely on the domestic system for the provision of financial services. the central bank launched the tracker mortgage examination – the largest, most complex and significant customer protection review we have undertaken to date – to ensure that lenders identified those customers harmed by this mistreatment and paid appropriate redress and compensation. as of august 31st, lenders have identified circa 38, 400 affected customers ( including cases resolved pre - examination following central bank intervention ), and paid €580 million in redress and compensation. the redress and compensation phases of the examination are now significantly advanced : 93 percent of affected customer accounts already identified and verified had received offers of redress and compensation by august 31st. four of the five main lenders are close to completing their redress and compensation phases, and we are exerting significant pressure on the remaining lender to finish its process. our bank - by - bank supervisory review of conduct of the examination is also significantly advanced, but will not conclude until lenders

##rs category. of the 66, 479 pdh accounts remaining in arrears, 28, 237 – or 42 percent – have very deep arrears, with arrears balances of more than 720 days past due. it is important to stress, in this regard, that engagement by borrowers is critical in order to avail of the statutory safeguards available through the ccma and the mortgage arrears resolution process ( marp ). to have a functioning secured lending market in ireland, security must mean something when borrowers default. notwithstanding the extensive use of forbearance and restructuring, there will continue to be cases where the lender will need to make alternative choices. the sale of npl portfolios is an option that has been employed by banks to this effect. the reduction in the size of bank balance sheets, particularly through holding a lower stock of npls, reduces financial stability risks in the event of a future downturn. in terms of national risk management, the transfer of credit risk and funding risk to investment funds that buy loan portfolios constitutes a national reduction in macro - financial risk, given that investors in these funds are primarily overseas. it is critical to stress, however, that the sale of such portfolios does not affect statutory consumer safeguards. the central bank applies itself equally to its dual mission of safeguarding stability and protecting consumers. accordingly, the central bank is committed to ensuring that the consumer protection framework governing mortgages continues to cover loans that are sold. in particular, loan owners must use a regulated credit servicing firm to manage the loans and these 5 / 7 bis central bankers'speeches firms are subject to the same codes of conduct as banks and retail credit firms, including the ccma. in other words, the protections for the borrower travel with the loan. regulated entities must comply with the ccma as a matter of law. the ccma includes requirements that arrangements are appropriate and sustainable for borrowers based on a full assessment of individual circumstances. regulated entities must make every reasonable effort under the ccma to agree an arrangement and repossession can be used only as a last resort. as requested by the minister for finance, we are currently undertaking a review of the ccma to ensure it remains appropriate specifically in the context of loan sales. we expect to provide that report to the minister later this year. finally, it is important to note that the central bank represents one part of the wider state consumer protection and debt resolution framework. in addition