systems and sovereign finances has been recognised and it has been accepted that borrowing to recapitalise banking systems adds to the negative feedback loop between the two. i look forward to the outcome of the continuing discussions on the summit conclusions so they are translated into a specific policy proposal that is indeed effective in breaking the banking - sovereign link. however, there are key steps that need to take place before this can be achieved, most notably the development of the banking union and centralised eurozone banking supervision. but that is a topic for another day. for now, my point is that in addition to the five domestic challenges for the irish banking system to more speedily achieve recovery, there is a sixth european challenge where there are positive signs but much work still to be done. this dependence on european developments, however, is no excuse for the banks to delay in tackling the five challenges i have discussed. with apologies in advance for the risk of oversimplification, let me sum this all up in the following way. one way to think about this is that the irish banks are now out of the critical ward, with more healthy vital signs, following radical surgery and an extensive transfusion of blood from the irish taxpayer. but as they stagger back to work they are still weak and aren ’ t contributing to society as they should. they need to demonstrate dedication in getting fully fit : they need to face up to their remaining ailments – by recognising losses – and continue to slim down – both their balance sheets and their costs. the banks now have the uncomfortable task of telling the neighbours who donated blood to them that they need to charge them more as customers. and the banks need to approach their new situation with a new culture to show they ’ ve truly changed their ways. these measures, which are in the hands of the banks ’ own management and do not depend on europe, will help speed them to full recovery. bis central bankers ’ speeches

##s as a result of a severe reduction in income. the banks were required to identify a broader range of techniques, including loan modification arrangements such a split mortgages and the introduction of mortgage to rent schemes, and to pilot these during q3 of this year. these pilots are now mostly concluded ( although are dragging on in one or two cases ) and the banks are now in starting the process of rolling out the new arrangements more widely. this process offers the prospect of restructuring loans where necessary to avoid customers continually re - defaulting. the central bank has studiously avoided prescribing the detail of the loan modification arrangements adopted by the banks and it must necessarily be for the banks themselves to undertake the case - by - case review of customers that is required. however, i would observe that there is significant variability in the approaches that the banks are taking to loan modification. that is natural and understandable, and i would not expect a standard approach across so many different institutions, with different portfolios and different types of owners, for so many different customers. but there are some key parameters in the typical loan modification arrangements that might perhaps merit a close side - by - side comparison in due course. for example, a crucial new technique is that of the provision of a split mortgage. this involves rightsizing the performing part of the mortgage based on affordability, as determined by current income, and warehousing the non - performing part. this is to be welcome, but the treatment of the warehoused element merits close attention. for example, is there shared risk between the bank and the customer regarding this element? and is it realistic that full interest accrues on this warehoused element? as the banks move out of their pilot phase on these new techniques and adopt them in their mortgage arrears resolution strategies, our code in this area requires them to publish full details on their websites. so there will shortly be an opportunity for some comparative analysis of the different arrangements that are being promulgated and therefore some public and customer feedback on the design choices that have been made. one important message today is that these efforts underway for mortgage arrears need to be matched for the banks ’ sme portfolios. earlier in the year, the central bank commissioned an in - depth analysis of the leading banks operational capacity for sme loan review, recovery and resolution. the results were in many respects dismayingly similar to those regarding mortgage arrears operations. for example, the reviews found the following : limited