network for greening the financial system ( ngfs ), we will be collaborating with central bankers and financial regulators from around the world in monitoring associated risks and developing suitable policy frameworks. however, it is clear that an extension of the university sector ’ s programme of work on climate change to include academic analyses of its macroeconomic impact and its implications for the financial system would provide a valuable external and independent expert perspective on these issues. in particular, given the global efforts in this area, it would be especially valuable to see academic studies that are customised to the specific challenges facing the irish economy and the irish financial system. beyond topics such as digitalisation and climate change, it is important that central banks and financial regulators also incorporate the latest thinking in academic research. for instance, the fields of behavioural economics and behavioural finance have become mainstream over the last decade. these fields study how people actually make choices, taking insights from both psychology and economics. for instance, the evidence shows that people are sensitive to the way that information is presented – the so called ‘ framing effect ’ – and that decisions can reflect emotions and biases, such as overconfidence or loss aversion. these fields are beginning to shape financial regulation, since the research shows that people often make predictable, persistent and costly errors when choosing and using financial products. the models developed by researchers allow us to understand why these errors arise and what we can do to ameliorate them. in relation to policy impact, the 2009 credit card accountability responsibility and disclosure ( card ) act in the united states was informed by behavioural evidence that showed that consumers misunderstand the true cost of credit. in the united kingdom, the financial conduct authority banned the sale of add - on insurance products through automatic tick boxes on the basis of behavioural evidence that consumers cannot compare products in this setting ( iscenko et al 2014 ). since behavioural economics and finance can help to create more targeted and effective policy solutions, the central bank of ireland is committed to using insights from these disciplines to strengthen consumer protection and promote healthy household finances. in terms of my wish list for university research, let me highlight several more areas. first, the demographic transition will have a profound impact on the national and international economies, together with an array of associated implications for society, families and individuals. in terms of the financial system, an ageing population changes saving and investment behaviour, while also requiring the implementation of a sustainable approach to pensions provision. while universities

on an assessment of the risks facing borrowers, the financial position of the banking sector as well as recent stress - testing of the system, is that the banking system is well placed to withstand the impact of any major adverse developments in the short to medium term. this central expectation does not preclude the possibility of adverse developments, which should they materialise, would have serious financial consequences for banks. stress - testing exercises a round of stress testing was launched earlier this year by the bank with the 11 domestic retail credit institutions, whereby each institution was required to assess its vulnerability to hypothetical shock scenarios. these include a major fall in foreign direct investment, a negative world trade shock, exchange - rate appreciation of differing magnitudes, interest - rate increases, and house price falls. at the same time, there was a separate overall assessment by the central bank of the banks ’ vulnerability to various risks. the results of both stress - testing exercises, notwithstanding some important caveats, suggest that the banking sector ’ s shock absorption capacity is strong. house prices and private sector indebtedness i would like to comment a little more on two vulnerabilities of the financial system. residential house prices following the publication of last year ’ s report a reacceleration emerged in annual house price increases. in more recent months, however, there have been tentative signs of a re - emergence, from both housing indicators and anecdotal evidence, of some easing of price pressures. if these signs were to be confirmed and to continue into 2007, the vulnerability posed by house prices would be reduced somewhat. accordingly, the recent indications that the momentum in the rate of increase in house prices may be easing is a welcome development which we would like to see continue. while a soft landing in the residential property market still seems to be the most likely outcome, the run - up in residential property prices until recently has been unwelcome for two reasons. first, it is not obvious that this was driven by fundamental factors. house prices would have enjoyed some support from continuing strong demographics and higher income growth, but increasing interest rates and continuing high levels of housing supply were acting to counteract this. there is an interesting new research study contained in this report which explores the role of interest rates and disposable income in determining house prices. while, as with all such estimations the results are not necessarily definitive, the study suggests that these variables largely accounted for increases in house prices over the sample period 1980 to 2005.