and insurance. the operational tasks have mostly lain within the bundesbank ’ s remit, while bafin is responsible for all sovereign measures. as you probably know, the new coalition of christian democrats and liberals recently decided to entrust the bundesbank with banking supervision. incidentally, giving central banks more responsibility for banking supervision is currently being debated in other countries, too. i would like to take this opportunity to make some remarks on this issue in the german context : firstly, collaboration between the bundesbank and bafin has worked well, both before and during the crisis. secondly, the bundesbank did not ask to be given full responsibility for banking supervision. rather it was an objective of the political parties that have won the federal elections. however, the bundesbank recently declared its readiness to take on more responsibility for financial supervision if this is politically desired. still, it is of the essence that the future system be compatible with the independence of the bundesbank, which is laid down by the eu treaty. we believe this is possible. nevertheless, in our opinion, the new german government would be well advised to closely consult the bundesbank in the decision - making process at an early stage. in any case, the eurosystem will have to be consulted before the law is changed. supervision of the financial system will have to become more systemically - oriented in the future. this implies that the interconnectedness of financial institutions must be taken into consideration. regulatory issues institutions matter. however, it would be very unwise to believe that the creation of new bodies at the european or global level and some institutional reform alone will prevent the reoccurrence of a similar crisis. ultimately, it is the regulation of financial markets that matters when it comes to creating a more resilient financial system. basically, making the financial system more stable is a manageable task. the real challenge is to make it more stable without significantly hurting economic productivity. remuneration schemes, currently a hot topic among the public, are a good example. the disincentive effects of bonuses in terms of short - termism and excessive risk - taking might be prevented by imposing statutory caps on salaries or limiting tax deductibility. however, if interventions are too far - reaching, they may have other disincentive and adverse effects. therefore it is important to find the right balance. the principles of sound compensation, which were formulated by the financial stability board ( fsb

quarters and by 44 percent from peak, with over 121, 000 mortgage accounts restructured, and 88 percent meeting the terms of their restructured arrangement. as discussed at this committee two weeks ago, the scale of mortgage distress means that mortgage lending is inherently riskier in ireland than other euro area member states. aside from default, due to the economic and social policy choices that have been made, the ability to effect loan security is more challenging, and loss given default in ireland is higher than in many other eurozone countries. longer recovery times are also associated with lower availability of credit, and higher interest rates. 3 the other significant challenge for the domestic banking sector is brexit. as the central bank is also tasked with assessing the long term resilience of the financial system, we see this as a key risk in 2017. the implications of brexit for the configuration of the irish and european financial system depends on the agreement that will be reached. should the uk - eu negotiations result in an agreement that retains the single passport for uk - resident entities selling into the eu, the net impact of brexit on the structure of the european financial system may be limited. in other less favourable scenarios in which uk firms do not retain passporting rights, it is likely that significant migration of financial activity from the uk to the eu will occur. depending on the outcome, the uk ’ s exit from the eu could have long - term structural consequences for those irish banks with a significant presence there. this will become clearer during the next two years, as the elements of the eu - uk relationship take shape. we will keep this and other risks continually under review and, where relevant, take the necessary risk - mitigating actions in line with our mandate. * * * banking union the advent of ‘ banking union ’ and the establishment of the single supervisory mechanism ( ssm ) in 2014 materially changed the supervisory landscape. the ecb took over ultimate responsibility for the supervision of all banks across the eurozone and direct supervision of the largest 120 or so banks, including the five domestically active banks in ireland ( the ‘ significant institutions ’ ). whilst still in its early years, ecb banking supervision is a critical institutional step towards deeper integration in the euro area. as is evident from the presence of international banks here, banking does not stop at national borders and therefore a harmonised supervisory approach is necessary to reduce financial fragmentation and ensure a level playing field across the euro area. the central bank is part of