are taking action to remediate them. this remediation continues to address legacy issue, drive improvements and build greater resilience into the system. the creation of the single supervisory mechanism ( ssm ) in 2014 is also fundamentally important. its creation reflected the european nature of banking failures and has centralised banking supervision across the eurozone under the authority of the european central bank. it has driven greater consistency and intensity of banking supervision and has started to rebuild confidence in the european banking system – albeit there remains some fragility to it. if we look back to the ‘ light touch ’ regulation of yesteryear, while there was an extensive rulebook, there was a catastrophic over reliance on banks, their management and the market as whole to act in a certain way that would avoid the build - up of undue risk. now 10 years since the onset of the crisis, rules are used to support a more assertive, intrusive, and outcome focused approach to supervision. the construction of today ’ s system has clearly been driven by the lessons of these last 10 years. the banking crisis – a decade on regulation has been successful in improving the safety and soundness of banks and other financial services firms, governance and risk management arrangements, and reducing ( but not yet removing ) contingent taxpayer liabilities connected with failure. to take one important and tangible example of what this means in the case of the irish banks, we have demanded increases in the quantity, and quality of capital that banks hold to protect against losses that could be triggered by a negative shock. overall, the system has over 3. 5 times the level of equity to risk weighted assets compared with 2006xix. regulation has also driven greater transparency, disclosure and consistency in reporting, and product design and literature. notwithstanding the progress, legacy issues remain. these include the remaining high level of non - performing loans that i referred to earlier, remaining vulnerabilities in some banks ’ business models, and capability issues in critical areas, including in it risk management. furthermore, resolution plans are not yet fully implementable, meaning that there is further work to be done to remove implicit taxpayer support for the larger banks. as we have recently reported, banks also have work to do to improve their cultures and the levels of diversity at senior levelsxx. this is why we remain focused on both addressing these legacy issues, and building resilience into the system during good times to mitigate the effects of the inevitable future downturns and shocks

– 10. just as expansive credit conditions filled the coffers in the good years, so the unwinding of an unsustainable domestic boom is draining the coffers in much the same way and to a similar magnitude. as many of you will know, the government has already taken prompt and painful steps to readjust its spending and tax profile, most conspicuously by effectively cutting public sector pay rates. it has kept to the targets it set for net budgetary savings in 2009 and 2010. i have recently been looking more closely though at the multi - year prospects for the budget. of course it can be said, if the economy stays close to the track originally envisaged, the deficit would come close to 3 per cent by 2014. but as the imf and others have noted, the real economy, the price level and also interest rates on government borrowing, have evolved in a less favorable way. servicing of the additional debt related to bank restructuring is also a negative factor. some explicit reprogramming of the budgetary profile for the coming years is clearly necessary soon if debt dynamics are to be convincingly convergent. recent movements in the yield spread on government debt – both for ireland and for some other countries – readily demonstrate the costs that can result unless international lenders remain convinced that the budget is going to be kept on a convergent path, as indeed the government is committed to ensuring. during the 1980s ireland paid a high price in terms of borrowing costs because the markets feared much steeper exchange rate depreciation than actually occurred. an equilibrium of pessimism, with the economy struggling, and investors requiring a risk premium that imposed additional costs on the taxpayer, displaced what could have been an equilibrium of selffulfilling optimism. it is important now to re - set the fiscal path to ensure a virtuous cycle of lower borrowing rates contributing to even faster fiscal adjustment and a lower overall cost of the adjustment to society at large. while there has been an international debate on this matter for larger countries, there seems to me to be no question, for ireland and for other small financially - stressed sovereigns, but that national growth is best served by ensuring that the public finances are convincingly on a convergent path : the impact on funding costs and confidence surely more than offsets any short - term adverse impact on domestic demand from lower net public spending. other recent european examples of banks imposing costs on the budget there have been several other high profile cases in europe