operations between banks. this resulted mainly from uncertainty regarding the extent of losses on complex financial instruments linked to sub - prime mortgages in the us. central banks responded quickly to counteract these adverse conditions in money markets. the ecb, in particular, was in a position to take strong action in the light of the pre - existing arrangements whereby banks had an extensive range of collateral that could be used to access central bank liquidity. these arrangements effectively addressed the problems at the short - end of the money market. however, with questions of transparency and asset valuation remaining, term interest rates continue to be elevated with higher than normal spreads remaining between longer - term rates and official rates. this will only change when confidence is restored among financial market participants. domestic banking sector the irish financial sector is not immune to these international financial developments which are persisting for longer than expected. term funding is not as readily available on wholesale markets and this has increased the need for banks to concentrate on liquidity management. internationally, share prices of financials have fallen significantly and irish shares have also suffered. it is important, however, to point out that irish financial institutions have negligible exposures to impaired us sub - prime and related structured credit products, and loan arrears remain historically low. accordingly, the banking sector here has not experienced the writedown of assets that has required several other international banks to raise additional capital. in line with the results of previous exercises, the preliminary results of our latest macroeconomic stress tests on the banking sector, which are designed to test the financial position of banks in the face of a serious economic downturn, suggest that the banking sector ’ s financial buffers remain strong. this strength is an essential prerequisite for the more challenging times that have arisen. a recovery to medium - term potential growth growth should pick up somewhat next year as the fall in domestic housing output levels off. thereafter, growth in the irish economy could begin to return towards its long run sustainable potential rate of close to 4 per cent. however, this recovery is not guaranteed and, as i have said earlier, will be influenced by how we respond to the current challenges we face. to ensure a sustainable recovery in growth back towards potential, it is important to focus on some key areas under our own control. these include the public finances, the efficiency and effectiveness of public spending, particularly in relation to increasing the productive capacity of the economy, and overall competitiveness. the slowdown in economic activity is impacting significantly

sector and here i think more work is also needed on restructuring the finances of many small firms whose underlying viable business is threatened by the overhand of property - related debt that they accumulated on the side, so to speak. this is a challenging work out job for the banks to tackle, and it needs to be done expeditiously in order to ensure that viable businesses are not overwhelmed but can instead resume their contribution to the economic recovery.