crisis, and with the policy response since march 2020 has helped to avoid the kind of harmful credit supply tightening that characterised the previous global financial crisis. a forward - looking assessment carried out and published at the end of 2020 indicates that banks currently have adequate capital headroom to withstand an adverse scenario without breaching capital requirements. 1 it will remain a policy priority of ours that the banking sector can support economic activity. in reflecting on what we have learned today, the most pertinent short - run issue facing us all relates to the survival prospects of businesses. up to now, the exceptional nature of policy support provided to the sector has meant that companies have in the main avoided insolvent liquidations. as things stand, for many smes, a normalisation of insolvency procedures at this point would lead to liquidation, given the sheer size of the shock they continue to grapple with. given the duration of closures due to public health restrictions, and the uncertainty levels that prevail around future demand in some sectors, it would seem that now is not the time to begin assessing companies ’ survival prospects based on pre - pandemic norms. the scale of potential closures would likely cause an unwarranted degree of damage to the labour market and the economy, including the risk of “ scarring ” which would hamper our economy over the long run. 1 / 2 bis central bankers'speeches this leads to a complex policy challenge that will require our focus throughout the rest of 2021 and beyond : firstly, over what timeframe, and subject to what economic conditions, should the government begin to taper its direct financial supports for businesses? second : at what point should the current system of creditor forbearance begin to adjust, and pre - pandemic insolvency criteria begin to apply? the continuation of unviable businesses indefinitely would lead to long - run economic damage through capital misallocation, a phenomenon sometimes referred to as “ zombie lending ”. similarly, the government must also take its fiscal sustainability into account as it plans for further direct support. however, given that the challenges facing the majority of businesses in financial distress currently relate to a pandemic outside of their control, rather than their own management decisions, as well as the progress with vaccination rollout which means that economic re - opening now feels close, the balance appears currently to weigh on the side of further protection and time for businesses to adjust and trade as conditions normalise. of

we will encourage a clear strategy, better specialist skills and operational capabilities and a more determined effort to work through the existing stock of troubled loans to try to recover or resolve individual cases. broadly speaking, these three work streams – balance sheet and sectoral restructuring, capital assessment and troubled loan workout – remain core elements of the strategy to improve the functioning of the banking system. a fully functioning and revived banking sector is essential to the economic recovery of ireland in order to provide credit to individuals and businesses. it is in ireland ’ s interest to see a profitable banking sector returning to full health. there have been some encouraging signs, such as the willingness of private investors to take stakes in bank of ireland and the ability of the banks to make a limited return to the debt capital markets. however, a key goal must be sustained profitability for the sector. in this respect, the outlook remains difficult, with low levels of domestic economic activity and compressed net interest margins. an early exit from the guarantee will help to normalise the sector and reduce a drain on profitability. continuing efforts are also needed on cost control. clearly the path ahead remains a difficult one and progress will inevitably continue to be slow given the significant dislocation that has occurred to the banking sector and the economy as a whole. supervisory and regulatory reform if banking sector recovery is perhaps the central bank ’ s top strategic objective, close behind it is the process of continuing to reform regulation and supervision. significant progress has been made on this front since i first set out my thoughts on this subject in march 2010. at that time, i drew the analogy that you can ’ t referee a premier league match with one linesman and no red card in your pocket. in other words, that it ’ s important that the central bank has the resources and powers needed to do the job. i ’ m pleased to say the good progress has been made on both fronts. the central bank was significantly under - resourced in terms of front - line supervisors, enforcement professionals bis central bankers ’ speeches and policy staff. we have now completed a phase of significant growth and in fact have revised downwards our target staffing numbers from 735 to approximately 685, with some further reductions planned in future years as a result of efficiency improvements and completion of some key responsibilities. we also continue to encourage improvement in staff quality, through rigorous hiring and probation procedures, in - house training and various quality assurance mechanisms. ireland is also making good progress in developing a set of robust powers. the