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

amplify domestic cost pressures. 1 in this speech, i mainly compare 2 % inflation with higher rates of inflation. however, the bank has also studied the costs and benefits of lower rates of inflation. a key takeaway from that work is that the 2 % inflation target provides a reasonable buffer against the effective lower bound ( elb ) on nominal interest rates. in contrast, lower rates of inflation entail a higher risk of elb episodes. see, among others, bank of canada, renewal of the inflation - control target : background information — november 2011 ( 2011 ) and bank of canada, renewal of the inflationcontrol target : background information — october 2016 ( 2016 ). - 3of course, cost pressures can also come from international developments — things like disruptions to global supply chains and increases in the price of commodities such as oil. figure 1 shows how these pressures impact the price - setting decisions of firms. figure 1 : key forces governing firms ’ price - setting behaviour domestic cost pressures international cost pressures ( largely via excess demand ) weak pass - through ( e. g., global value chain disruptions, oil prices ) strong pass - through firms ’ price - setting decisions inflation expectations strong anchoring weak anchoring inflation target low inflation environment inflation outcomes high inflation environment but another key force affecting inflation is what firms expect to happen. these expectations matter because firms know that customers will ultimately judge firms ’ prices in relative terms — that is, relative to the prices of other goods and services trading in the broader economy. a firm ’ s pricing decisions are therefore based partly on what the firm thinks its competitors will do and where it believes overall inflation is headed. now here ’ s my main point. the key forces affecting inflation — that is, cost pressures and expectations — tend to behave differently based on whether inflation is high or whether the economy is operating close to a well - established and low inflation target. these differences are illustrated by the blue and red arrows in figure 1. first, let ’ s focus on cost pressures. in high inflation environments, firms tend to adjust prices more frequently — otherwise, their prices would quickly fall out of - 4step with their costs and the prices set by other firms. 2 this makes it relatively easy for firms to quickly pass on cost changes to their customers. 3, 4 in contrast, firms can make do with less frequent price adjustments when inflation is low. rather than being passed on to customers, much of the day - to - day volati