issue debt to finance a loan or an asset purchase, there is an immediate impact on government debt in the official statistics. but no impact on the deficit will be recorded unless or until there is clear evidence that the interest on the loan or the price paid for the asset does not reflect market conditions. in cases where a privately owned special entity is established to provide loans or purchase assets, there may be no immediate impact on the government accounts, even if the debt issued by this entity is backed by a government guarantee. only if and when this guarantee is called will the corresponding amount be recorded as government spending. at the current juncture, it is impossible to assess the amount of the guarantees that will be called or what the final scale of the losses will be. as eurostat put it, the cost of the public support to banks is a large cloud on the horizon, but at the moment we do not know how much it is going to rain! the fiscal exit strategy faced with the prospect of large deficits in the coming years and uncertainty regarding the final costs of bank rescue packages, the priority for fiscal policy must be to set out a clear and credible plan for restoring order to the public finances over the medium term. just as central banks are mulling their exit strategy from non - standard monetary policy measures, governments need to develop their exit strategy too. * * * in this respect, the first hurdle to overcome is to be honest and transparent about the scale of the problem. as i already mentioned, much of the support given by governments to the banking sector will not be reflected, for the time being, in the government accounts. but this does not mean it can be overlooked. eurostat has announced that it intends to establish a supplementary reporting table to collect data on guarantees, liquidity support measures, and the operations of special purpose entities relating to the financial crisis. this reporting must be taken seriously. public authorities cannot call on banks to be more transparent about the scale of their liabilities, if they exploit statistical conventions themselves to keep debt off of their balance sheets. beyond this, there is a risk that the increase in government borrowing during the crisis is viewed as being purely the consequence of the operation of the automatic stabilisers and fiscal stimulus packages. cyclical effects should cancel out over time. stimulus measures are supposed to be largely temporary. so once the crisis is over and the stimulus measures unwind, we should be more or less back where we started. this is wishful thinking. the sharp

stefan gerlach : the central bank of ireland ’ s macro prudential policy address by mr stefan gerlach, deputy governor ( central banking ) of the central bank of ireland, to the society of chartered surveyors ireland, dublin, 15 october 2015. * * * accompanying slides can be found on the bank of ireland ’ s website : slides ( pdf ). introduction1 it is a great honour to be here this afternoon and to participate in your annual conference. i am particularly pleased to have the opportunity to talk about macro prudential policy, which promotes something that we all desire – financial stability. the macro prudential policy measures that the central bank introduced some nine months ago – that is, the loan - to - value ( ltv ) and loan - to - income ( lti ) ratios for residential property lending – have been widely commented on. i think it is fair to say that, overall, the comments have been fairly balanced – they have been criticised by some observers but supported by others, although admittedly the critics may have gotten more play in the public debate. i think it is desirable that policy measures that the central bank takes are subject to public debate. it is also fully proper that we in the central bank are asked to explain the background and rationale for the decisions that we take, so invitations such as today ’ s should be accepted eagerly. background it is perhaps useful for me to start by recalling the background to the policy measures, which were introduced to increase the resilience of the banking and household sectors to the property market and to reduce the risk of bank credit and house price spirals from developing in the future. ireland experienced in the last decade a property boom - bust cycle of the most severe type. the aftermath has been protracted and painful. while the economy is now recovering strongly, public and private indebtedness remains very high and the return to growth is very much helped by the exceptionally low level of interest rates which help to reduce the burden of debt. one can ’ t help but worry about what would happen if interest rates rose sharply. during the boom, property prices rose extremely fast, increasing collateral values and reducing the perceived riskiness of mortgage loans. massive construction activity and heavy investment in housing and commercial property led to rapid economic growth, which reduced unemployment rates and in turn further reduced the perceived riskiness of mortgage lending. but we now know that lending standards slipped in a dangerous way during the boom. the subsequent downturn was