there is no shortage of ideas around for how the capital regime might be modified to dampen potential pro - cyclicality. some have suggested that a regime that adjusts regulatory minima with the cycle could help reinforce the message that buffers need to be built up in good times and are there to be used when a rainy day arrives. to a degree, this is already possible under the second pillar of basel ii. however, too much divergence in national implementation of pillar 2 would raise issues of transparency and consistency in international regulatory arrangements and should therefore be constrained. to be credible, a discretionary system would need to be limited in its scope, fully transparent, and broadly consistent across countries ; ad hoc, uncoordinated reductions in required minima could be viewed as forbearance and could give the wrong signal about authorities ’ judgement as to the overall strength of the system. it may also be possible to give more attention to the mix of capital instruments supporting banks ’ risk exposures. there may be scope to enhance the quality of capital during strong economic conditions. a complementary policy aimed at strengthening buffers could look at mechanisms to automatically increase bank equity levels in bad times, such as reverse convertible debentures proposed by flannery or the insurance scheme proposed by kashyap, rajan and stein. although many issues of security design would need to be addressed for these instruments to effectively discipline banks, generate adequate investor demand, and to be reliably collected on when bad states occur, these mechanisms could potentially reduce the bad - signal problems associated both with discretionary changes in minima and with capital - raising efforts by the banks themselves. a necessary complement would be a disclosure framework for risk exposures and valuations that prevents the market taking conversion events or the resort to insurance as a trigger for a broader downgrade of the system ’ s future prospects. strengthened capital and liquidity buffers and improved incentives to assess and manage risk should all help reduce the pro - cyclicality of the financial system, and, in the new configuration of the financial services industry more than ever, help monetary policy to attain its traditional objectives. but should monetary policy itself embody in its objective function the health of the financial system? as chairman bernanke and others have noted, we cannot afford to ignore the health of financial markets when setting monetary policy. it would be difficult to disagree with this statement, and we should try to make it operational considering however that its application may have different degrees of intensity.

patrick honohan : reflections on corporate restructuring in ireland address by mr patrick honohan, governor of the central bank of ireland, to the corporate restructuring summit, dublin, 27 september 2012. * * * it would be an understatement to say that corporate restructuring is a topical issue for ireland these days, though it is worth remembering that a dynamic economy entails a continuous process of corporate restructuring and not just in bad times. in normal times firms adapt in part through internal reorganisations, including product and process innovation. but the individual firm does not always have what it takes to reinvent itself in response to major changes in technology and competition, and then its survival is subject to takeover, merger, or, in the case it is unable to pay its debts as they fall due, to various forms of asset or liability restructuring. the need for corporate restructuring in ireland today right now, though, an extraordinarily large number of firms in ireland have been experiencing financial distress typically as a result of the deep domestic and ( less deep but equally protracted ) international downturn in demand, or because of their unwise property investments. an extended period of intensive corporate restructuring has begun. this is most conspicuous for the big property development companies, but there are many others. much of this restructuring has so far come through firm exit altogether. cso surveys covering about half of the economy, and most of the non - agricultural business sector, throw some quantitative light on what ’ s been happening ( table 1 ). the number of firms counted by the cso in the census of industrial enterprises fell from about 5600 to under 4800 between 2008 and 2010, the worst period of the crisis and the latest for which data is available. almost no subsector was spared. this proportionate decline, of over 14 % in numbers of industrial firms, is not too far from the decline in aggregate employment in that sector ( 17 % ). the story is broadly similar in construction and in services, especially if one excludes the large number of very small firms in these sectors. indeed, the number of construction firms employing more than 20 persons has almost halved, with their employment falling by almost two - thirds. broadly speaking, the relatively small change in the average employment per firm seen in the data suggests that the downturn has not favoured large firms over small, and also that the employment decline has been driven more by firm closure than by partial lay - offs. even after such a big shakeout