doubled across the euro area over the past decade. 5 so market - based finance has been growing in europe, a trend that is also mirrored internationally, with potential benefits for the economy as a whole. the need for resilience in markets for those benefits to be realised fully, however, a critical precondition is that markets are resilient in the face of adverse shocks. if market financing is there in good times only, and disappears or gets disrupted when shocks hit, that can adversely affect the rest of the financial system or, increasingly, the broader economy. in fact, in recent years, we have seen incidents – at a global level – where external shocks resulted in a significant disruption in core markets. for example, in march 2020, amid a sudden ‘ dash for cash ’, there was severe disruption in a range of global markets, including short - term funding markets, longer - term corporate debt markets and even sovereign debt markets. 6 and, last year, we saw an abrupt disruption in the gilt market in the uk, with evaporating market liquidity and a sharp spike in gilt yields. this episode had significant and persistent adverse spillovers for other market participants and the broader uk economy. 7 of course, in both of these instances, what triggered the stresses were exogenous events. in the former case, the onset of a global pandemic, which the world had not experienced in about a century. in the latter case, market perceptions of a shift in fiscal policy in the uk. but these exogenous events were amplified by vulnerabilities within the financial system. indeed, a common thread in both of these episodes was a spike in demand for liquidity due to asset sales by non - bank financial intermediaries in light of underlying financial vulnerabilities, including liquidity mismatch and leverage. and, in both of these cases, returning to functioning markets required significant central bank interventions. in essence, what these stresses demonstrated was insufficient resilience in segments of the financial system, or – put differently – insufficient private self - insurance ex ante. and the eventual outcome was a need for public interventions ex post. this is not an optimal outcome from a public policy perspective. central bank interventions are not cost free. depending on their design, they can interact with the monetary policy stance. they can also entail risks to central bank balance sheets. and any market expectations of central bank interventions ex post can distort incentives of

is it good for the overall recovery of the economy on which the banks depend for their long - term success? admittedly, it is essential for the survival of banks that they achieve a sufficient return on the investment of funds, including equity ( much of it owned by the government, by the way ). if not, they will not be able to achieve and maintain the growing requirement for capital adequacy in the years ahead. the profitability goal has to take account of long - term considerations, and of the risks involved in lending, especially the actual and prospective losses on non - performing mortgage loans. nonetheless, personally, i would welcome a reduction in bank svr rates in current circumstances as a benefit to the economy at large. were it not for the firm conviction that the introduction of administrative control on interest rates in ireland would be bad for the country as a whole in the medium term – notably because of its stultifying effect on bank efficiency and its chilling effect on the entry of other banks – there could be a case for some government intervention. bis central bankers ’ speeches the svr contract the svr type of contract was the mainstay of irish mortgage lending for decades. it had the advantage of being adjustable in response to changing conditions, and as such insulated the lender from sharp rise in the cost of funding. 1 as such, it avoided the devastating squeeze on profitability which led to the insolvency of a large part of the us savings and loans industry in the 1980s. but the wording of most svr contracts meant that borrowers are vulnerable, not only to changing funding costs, but to many other types of influence which the lender judges to warrant a change in rates. the svr was increasingly replaced for new lending by the tracker mortgage, especially in the boom. this much more tightly defined interest rate contract protected the borrower against any interest rate changes other than those occurring to the ecb policy rate ( which is a rate at which the ecb lends a small amount of the funds required by euro area banks and which is adjusted to help ensure that the ecb meets its monetary policy objectives, principally with regard to euro area inflation ). whereas, pre - crisis, the irish banks were easily able to secure deposit and bond funding at close to the ecb policy rate, their ability to do so since the crisis has been constrained ( though recently improving ). because of this ( and because the spreads they set above the ecb rate