made in many other areas too. my colleague ed sibley, deputy governor, prudential regulation outlined in more detail the specific regulatory and supervisory response, earlier this week. xix * * * lesson 4 : some banks will inevitably fail - we just have to be better prepared the level of public support to the banking system during the crisis in the eu was staggering. in 2009, member states provided the equivalent of 7. 3 % of eu gdp, or eur 906 billion in liquidity support and guarantees to the financial sector. ireland stands out beyond any other member state in terms of the relative support it provided following the far - reaching 2008 decision to guarantee all liabilities and deposits. beyond liquidity and support, member state governments provided capital support amounting to 4. 5 % of eu gdp between 2008 and 2012. ireland, for example spent the equivalent of 37. 3 % of gdp recapitalising its banks over the period. xx this motivated a fundamental change in how banks and authorities prepare for and manage bank failure. in ireland, as a direct response to the crisis, we introduced the credit institutions resolution act in 2011. in a european context, the bank recovery and resolution directive ( brrd ) now provides authorities with common european rules for the recovery and resolution of failing banks. when banks get into difficult financial situations, the supervisor now has a number of early intervention powers at its disposal. the brrd also requires each bank to prepare a recovery plan which outlines what it will do if it gets into difficulty. the central bank of ireland was designated as the irish national resolution authority in 2015. in this context, the bank is also part of the single resolution mechanism and we draw up firm - specific resolution plans with the aim of enhancing the resolvability of the firms. central to the brrd is that the authorities have a variety of powers to try and minimise the cost to taxpayers of a bank failure. critically, the new framework introduces bail - in tools and also aims to ensure that banks have a sufficient stock of bail - inable liabilities. this is known as the minimum requirement for own funds and eligible liabilities ( mrel ). in short, the objective of this is to ensure that shareholders and creditors bear the brunt of losses in bank failures, thus moving from bail - out to bail - in. ensuring banks have sufficient and high quality mrel goes a long way to increasing their goneconcern loss absorbing capacity. so in short, the fourth

a full counter - factual simulation. that is beyond the scope of this paper. as a shorthand, we can still do something simple but nevertheless informative about the way the world might have looked. this is done by simply redrawing the path of us banks ’ capital ratios on the assumption that the ccb had been in place. in particular, we can use the basel iii calibration of the link between the ccb and the credit gap to simulate a hypothetical path for us banks ’ capital ratios. such an exercise is essentially identical to the common practice of constructing taylor rules for monetary policy, as in chart 2. chart 4 draws the macro - prudential policy - implied path of us bank capital ratios. in deference to the architect of modern theories of credit - induced instability, let us call this the “ minsky rule ” [ minsky, 1986 ]. the path of the minsky rule is, in many respects, the mirrorimage of the taylor rule. it suggests that hypothetical us banks ’ capital ratios would have been systemically and significantly tighter than their actual path between 2000 and 2009. in bis central bankers ’ speeches other words, a tight macro - prudential stance would have counteracted the effects of a loose monetary policy stance. although it is impossible to know for certain, it seems plausible that having this extra degree of policy freedom would have helped stabilise the us economy and financial system. a tighter bank capital regime would have tended to slow pre - crisis credit growth, thus constraining the boom. and more capital in the us banking system would have helped protect the wider economy from the credit crunch that followed the bust. in short, the boombust cycles in us credit and gdp would have plausibly been somewhat less severe had us policy been ambidextrous. the euro - zone crisis as a second historical example, consider the behaviour of some euro - zone crisis countries. in the run - up to monetary union, monetary policy was loosened significantly in a number of the peripheral european countries whose interest rates converged on core euro - area countries. as chart 5 illustrates, between 1995 and 1999 interest rates fell by between 3 and 6 percentage points in ireland, spain and portugal. and in greece between 1995 and 2001, interest rates fell by a remarkable 16 percentage points. whether by coincidence or causality, what happened next in credit markets in these countries was dramatic. the credit gaps in each of spain, portugal, ireland and greece