generally – can be underpinned. despite the generally lower interest rates that have been prevailing, given what has happened in this steep recession, in particular the sharp increase in unemployment, and given the heavy indebtedness that was incurred by many households in previous years, there has, however, been an exceptional increase in the number of households who have missed payments on their mortgages. for some, this will reflect transitory factors and they will be able to resume servicing of their mortgage and other debt ; for such cases the most commonly used restructuring and forbearance arrangements may be sufficient. but it is entirely foreseeable that some households whose circumstances have deteriorated will not be able to recover fully and that the banks from whom they have received the mortgage loans cannot avoid eventually incurring some losses on these. in requiring additional capital for the banks – much of which has been injected by the government – the central bank has ensured that the banks have sufficient financial strength to absorb losses of this type in cases where borrowers are genuinely in serious difficulty. this provides more capacity to address individual mortgage arrears cases. it is clear that many lenders have been slow to acknowledge the extent of this problem and to put in place sufficient operational infrastructure to deal with it. nevertheless it is a task from which the lenders should not be relieved. neither the lender nor the borrower is wellserved by delay in recognising the existence of an inability to service debt. despite its severity – indeed because of its severity – this problem can be adequately dealt with only on a case - by - case basis taking account of the borrower ’ s particular circumstances. banks must put the framework and resources in place to examine the individual cases of distressed borrowers. the sooner they do this the better. there are, of course, already strong protections in place for consumers who are in mortgage arrears. the central bank code of conduct on mortgage arrears imposes statutory requirements on banks to deal expeditiously and fairly with distressed mortgages in a manner which takes account of the overall economic conditions of the household. this framework provides protection for these consumers who are in mortgage arrears in their bis central bankers ’ speeches dealings with their banks, including stopping the clock on legal action by the banks, no charges and the requirement that the bank must engage constructively to arrange alternative repayment arrangements with the borrower. it is very important to stress that for this code to work well, it is

##ly important the targeted reduction of the deficit as a proportion of gdp is achieved on or even before schedule. progress in this regard, combined with further improvements in the competitiveness of the economy, and a restoration of a functioning banking system, are the cornerstones to recovery. recent developments in financial markets point to an increased recognition that ireland is taking the right steps to achieve a return to sustainable growth and balanced public finances. the task now is to maintain the momentum behind all the necessary adjustments required to move the economy out of its current difficult situation. progress on these fronts will help to increase the resilience of the economy to change in the external environment and move decisively towards a situation in which households can look forward to modest but steady increases in real incomes and living standards. bis central bankers ’ speeches eu - imf programme banking as well as fiscal and other aspects of economic policy are, of course, being conducted in the context of the policy package agreed for the eu - imf programme. but it would be a mistake to exaggerate the degree to which this package represents a different course from that which irish policymakers would otherwise have chosen. consistent programme compliance by ireland, as has been confirmed in the three reviews by our external partners – the eu commission, the ecb and the imf ( in january, may and, most recently, in july ) – is thus not only the key to restoring market confidence ( and ensuring release of programme funding ), but signals important steps towards rebalancing and strengthening the economy towards a recovery of activity and especially employment. under all three reviews ireland has been deemed to be on track in relation to all the quantitative macroeconomic targets and the structural benchmarks. in particular, the banking strategy is proceeding as scheduled. the financial sector reforms include the restructuring, recapitalisation, and the deleveraging of the banks. all of the structural benchmarks have been observed here too, with some achieved ahead of schedule. in fact, the third review and assessment, which took place in july, is being discussed at the imf executive board and at the european councils today, and following the board ’ s and councils ’ approval, the next tranche of funding will be issued. mortgage arrears of course the vast majority of irish borrowers will continue to meet their commitments in servicing mortgage and other debt, albeit under more difficult circumstances. it is only on that basis that economic recovery – requiring, as it does, the progressive restoration of credit and finance