again on a sustainable basis – which our forecasters believe could happen during the course of this year. against this background, the government ’ s determination and achievement in making the agreed, necessary overall reduction since 2008 in the gap between taxation and spending ( painful though it is for many ) has been a vital element in restoring the confidence of official and private international lenders which is a prerequisite for sustained recovery in employment and economic prosperity. the government has recovered access to the bond markets and, while the cost of borrowing has come down a lot in the past half - year, i am sure that spreads would have fallen even lower were it not for the wider uncertainties in sovereign debt markets. bis central bankers ’ speeches the reconstruction of a healthy banking system has been hampered by the scale of bank losses, and the fact that such a large fraction of their borrowers, both households and firms, are under stress. during 2009 – 2011, the capacity of the public authorities was stretched to the limit in sourcing the liquidity and the capital needed for the basic functioning of the system. while the rest of the public finances also needed urgent adjustment, it was this additional pressure that tipped the country into the need for official assistance in the eu - imf programme. apart from rebuilding their financial buffers, the banks have had to completely overhaul their loan recovery operations, and to develop effective methods of loan underwriting in a new environment. it is no secret that the central bank has been concerned at the pace of both dimensions. going well beyond what has been customary, the central bank has been closely reviewing the steps being taken by banks to engage with stressed mortgage and other borrowers under what we are calling the mortgage arrears resolution process. certainly the banks have ramped - up their activity here, but progress towards ensuring that unsustainable debts are appropriately restructured, while also ensuring ( in a manner consistent with the code of conduct on mortgage arrears ) that those currently in arrears whose circumstances should enable them to service their debts get back on schedule is clearly far from adequate so far. there are risks on both sides here. too lenient an approach to loan recovery will result in an intolerably heavy bill for the exchequer and hence the taxpayer and the user of public services. too much reluctance to face up to reality about unsustainable debts will also delay the economic recovery. the personal insolvency bill provides a welcome new route whereby distressed mortgage borrowers ( especially those

forward. the measures introduced to date however, have already changed how we supervisors think about risk and risk mitigation. non - bank financial intermediation, financial stability and prudential supervision to maintain financial stability, we cannot solely focus on banks. non - bank finance has become an increasingly important source of financing of economic activity. since the crisis in 2008, globally ( as reported by the financial stability board ( fsb ) ), banks ’ share of total global financial assets has declined from 45 % to 39 %, as so - called ‘ ofis ’ or other financial intermediaries take larger shares ( from 26 % to 31 % ). 13 this evolution can bring with it different types of systemic risk which can threaten financial stability, be they via direct exposures or indirect exposures – for example when common assets are held or move together. just one salient example of this is commercial real estate ( cre ). the size, interconnectedness and use of high leverage makes cre important for financial stability, and hence important for supervisors. this is particularly important in today ’ s monetary policy environment with low interest rates and search for yield dynamics which are increasingly pushing up prices. 14 on the one hand, the fact that cre financing is moving outside domestic banking systems is positive for financial stability – potential losses can be shared more widely, liquidity is increased and foreign investors may exit an overheating market sooner, thereby dampening a boom. 15 on the other hand, given growing interconnectedness boom - bust cycles could be amplified as cre markets become more synchronised globally. authorities need to be ever more vigilant in monitoring leverage and maturity mismatches of non - bank entities. forthcoming research by staff at the central bank of ireland highlights these risks and vulnerabilities and that shocks to market - based finance can be a source of disruption of services to the real economy in and of itself. 16 what does this mean for supervision? it means all sectoral supervisors must have a wider view of the financial system in which firms are operating. it means supervisors must increasingly focus on macro - financial dynamics. 5 / 7 bis central bankers'speeches it means financial stability assessments must be fully embedded in supervisory risks frameworks. it means that where national competent authorities for banking are separate from funds or insurance for example, they must cooperate more intensively. this is not easy to achieve. however to maintain financial stability we must take a holistic perspective and pursue an