the back of the resilience we have built up in recent years – the banking system has been able to support the economy in the first phase of the pandemic. but the shock has not yet fully transmitted to the balance sheet of the banking system. however, as we transition from temporary forbearance measures that addressed liquidity for borrowers there is a need for longer term solutions for those borrowers experiencing solvency and affordability difficulties. we are seeing that some sectors are being more affected than others, e. g. the hospitality and accommodation sector, where economic disruption is affecting employment and the viability of businesses. the inevitable effects of unemployment and business closures will take time to materialise on bank balance sheets. european institutions have played an important role here too. the european banking authority ( eba ), for example facilitated the delivery of payment breaks. they did this through guidelines providing regulatory flexibility so that lenders could offer temporary relief to borrowers in the form of payment moratoria that suspended regulatory rules on loan classifications. while the extent of the effects on the financial system will depend on the evolution of the virus and the scarring effects of this crisis, the deeper european regulatory and supervisory integration has created a more robust and resilient system to withstand the initial shock. the banking system is one element of the financial system, and following the global financial crisis an increasing share of financial intermediation has moved to parts of the non - bank or market - based finance system. to give a sense of scale, non - bank financial institutions now account for almost 60 per cent of total euro area financial assets. the equivalent number in the early years of the euro was under 40 per cent. 10 the scale of the sector in ireland is relevant to the global picture, as our jurisdiction hosts 10 per cent of global money market funds ( mmf ) assets and 5 per cent of global investment fund assets ( excluding mmfs ). 11 there are a range of diverse business models domiciled here, including investment funds, securitisation vehicles and non - securitisation vehicles. the sector in ireland is dominated by investment funds, including mmfs. market - based finance provides a valuable alternative to bank financing and can facilitate risk sharing across the financial system. recognising this, the european commission has produced an action plan to complete the capital markets union ( cmu ) in europe. 12 deeper and more developed capital markets can facilitate long - term investment, by allowing

ambitious targets for capital spending as part of the national development plan. public investment, both by itself and as a means of crowding in private investment, is necessary to build our economic resilience. appropriate levels of investment in priority areas such as housing will reduce the impact of future adverse shocks by addressing the structural challenges we face in infrastructure and climate change. balancing the effective delivery of needed public investment in the current high - inflation environment will require careful management and prioritisation in other areas, in particular when it comes to choices regarding current expenditure and taxation. recent analysis by central bank staff shows that further stimulating economic activity with additional permanent current spending would risk creating excess demand and in the process would add to already high inflation. as the ecb ’ s governing council said last week, “ fiscal support measures to cushion the impact of higher energy prices should be temporary and targeted at the most vulnerable households and firms to limit the risk of fuelling inflationary pressures, to enhance the efficiency of public spending and to preserve debt sustainability. ” increases in permanent core expenditure should be funded by permanent revenue - raising measures to avoid introducing a vulnerability in the public finances as well as reducing the risk of creating imbalances in the economy as a result of excess demand. the economy in general, and the public finances in particular, have benefited from the exceptionally low interest rate environment that has prevailed over recent years. as policy rates increase – and over the next several meetings the governing council expects to raise interest rates further – sovereign financing costs will increase. the reduction of public debt, supported by a sustainable funding base for public expenditure, should remain a key priority in the years ahead. as interest rates rise, financial markets are more likely to increase the focus on fundamentals such as relative debt levels when pricing sovereign bonds. credit worthiness will continue to matter. the longer term : building resilience from a policy perspective it is important to also take a step back and consider the longer - term. in fact, i think this should be a more central part of our policy deliberations. our experience of the past few years suggests a greater tendency for medium - to - longer term issues and economic shocks to coincide more frequently with day - to - day conditions. the current experience of energy prices is a case in point, where the challenges and opportunities presented by the necessary transition to a less carbon - intensive economy are becoming obvious in a shorter time period than previously expected. consequently, anchoring public policy in achieving a more resilient