that demand was falling and unemployment rising. unsound fiscal policies have particularly severe consequences when they coincide with a financial crisis. capital markets were unable to manage the large pool of savings from emerging market economies in asia. safe yields had fallen and the search for returns provided fertile ground for creativity in financial markets. governments worldwide allowed the banking system to grow in the belief that regulations were sufficiently stringent, that a large banking sector is a benefit and that banks ’ self - interest would prevent them from taking excessive risk. the regulations, which in the 1980s were regarded as overly rigid, had been introduced during the crisis of the early 1930s as a still - vivid memory. the well - known glass - steagall act had been passed in 1933 precisely to prevent financial sector excesses. banks that took deposits from the public were subjected to strict rules concerning the amount of risk they could take. deposits were guaranteed by deposit insurance, and banks could draw on central bank liquidity if necessary. investment banks whose customers were professional investors had a freer hand, but no safety net. 8 banking gradually became a growth industry in many countries. strict regulations in one country prompt banks to flee to another. the result was the dilution or elimination of many regulations that attempted to rein in the imagination of the financial sector. the rationale behind the glass - steagall act was discarded. this trend was universal. unfettered financial markets were apparently a success. mortgage - backed securities enabled more americans to become homeowners, and a bullish stock market was good for pension funds – as long as it lasted. 9 debt levels among european countries were, on the whole, excessive in 2008, though this varied substantially from country to country. for example, ireland and spain had moderate sovereign debt, but both countries have later incurred additional obligations owing to the problems in their banking sectors. by 2008, the government debt of italy and greece had already exceeded 100 percent of gdp. in the us, under the glass - steagall act, which was passed in 1933, banks were no longer allowed to engage in retail banking ( deposits, lending and payment services ) while also engaging in more risky investment banking activities. when the act was formally repealed in 1999, it had long been the subject of intense discussion in the academic literature. see, for example, george benston ( 1989 ), the separation of commercial from investment banking : the glass - steagall act revisited and reconsidered, kluwer academic press,

lower income households bore the brunt of job losses and wage cuts in the last recession. 6 while the concentration of over indebtedness was in households where the head was born in the 1970s and 1980s. 7 this group cut their spending to prioritise debt repayments and in some cases sought debt resolution through insolvency arrangements. 8 there was a sharp rise in market income inequality. 9 however, by one measure, disposable income inequality was more stable over the period, illustrating the heavy lifting by taxes and transfers in ireland. compared with other oecd members, the taxes and transfers system here results in the greatest difference between market and disposable income inequality as measured by the gini coef cient. 10 however, i recognise that measuring inequality is a challenge, and one that tasc and others here this evening spend considerable time on. and while using one number is a blunt measurement, it does enable a comparison across countries. furthermore, income is but one type of inequality, wealth inequality is another. when last measured in 2013, ireland was placed in the middle of our european peers. however, since the 1980s the level of wealth inequality had substantially increased. we know from surveys we conduct with the central statistics of ce ( cso ) that indebtedness plays a key role in the net wealth distribution, or inequality. 11 at the central bank we are used to looking at areas of macroeconomic vulnerability, while tasc and other groups are i understand, in the main, focused on inequality, social vulnerabilities and change. it is important to remember that these vulnerabilities intersect. a core part of what we do aims to build resilience of households and businesses and ensure the stable provision of credit. against this backdrop, let me now turn to borrowing and indebtedness in the context of the mortgage rules we have in place. research shows that when crises follow periods of high leverage or excessive lending and borrowing the recoveries are slower and the recessions are deeper. 12 excessive credit growth independent of incomes can have a severely negative effect on household welfare. the recent crisis in ireland was testament to that, and as i just noted, it affected different groups in different ways. a decade on, households are recovering from the crisis. the number of households in arrears continues to decline and the economy is nearing full employment. yet, the legacy remains. in comparison to our european peers, ireland ranks fth comparing ratios