proposed new eu framework still need to be ironed out, i strongly support the direction proposed. i welcome also the recent announcement here providing for full integration and co - ordination within the central bank of responsibilities for both financial stability and micro - prudential supervision. these new domestic arrangements would fit very well with the proposed new european framework. the current crisis has made it clear that risk management practices across all parts of the financial sector need to be improved significantly. one of the key aspects that must be addressed is ensuring that the regulatory framework does not magnify the cyclicality already inherent in the financial system, as it has during the current crisis. in this context, it is essential that we develop mechanisms and procedures to ensure that banks accumulate resources in good times to act as a cushion when the cycle turns. clearly, accounting standards play an important part here, and i welcome initiatives being undertaken both at the iasb and the basel committee to improve reporting in order to reduce cyclicality. the restructuring of remuneration packages is another important issue related to risk management practices, and the re - alignment of incentives to prioritise long - term sustainability above short - term profitability is necessary. structure of irish banking sector in the light of all that has happened, we need to examine the structure of the domestic banking system. when the crisis comes to an end the structure and shape of our banking system will be different. this is likely to be an international trend. in ireland, the very existence of nama will in itself be central to this. the banks that emerge from that process may well be smaller but better prepared for the new environment. this should allow for a more focused and consolidated banking sector. we need to ensure that the banking system that emerges is one that is there to serve the future needs of the economy. the global financial services industry is going through a period of radical change as a result of the financial crisis. at this stage, it is not clear what will be the ultimate impact on the industry. the international financial sector operating in ireland is obviously not immune to these global developments. however, there is a broad range of activities located in the ifsc, which as a whole has withstood the crisis reasonably well, and i am confident that the ifsc will continue to make a very significant contribution to the irish economy. economic assessment while huge efforts have been put in to stabilising the financial sector, we also need to act to restore stability in other areas. more generally, it

john hurley : restoring stability to the banking system speech by mr john hurley, governor of the central bank and financial services authority of ireland, to aci ireland, dublin, 10 june 2009. * * * introduction thank you for inviting me to speak to the association again. when i last addressed the aci it was the autumn of 2007. we had by that time experienced the first months of market volatility, which had started out as a problem centred on the us sub - prime market quickly followed by global problems of declining liquidity and a sharp re - pricing of risk. as we now are aware, we were, back then, only in the foothills of what has turned out to be a financial crisis of very major proportions ; one that has demanded, and continues to require, an immense response from authorities worldwide. it is also a crisis with a particular domestic resonance here, coinciding as it did with the correction in our own property and constructionrelated sectors. as in other countries, the authorities here have taken extraordinary and unprecedented measures to stabilise the banking system and the economy. my address tonight will focus on events since september of last year when the turmoil became a full - blown crisis and how authorities have responded since that time. it is clear that that this crisis will drive significant changes both in terms of the structure of banking systems as well as the regulatory regime and i will share some thoughts on these issues. restoring stability to the banking system is a necessary but, on its own, not a sufficient condition for restoring health to the economy. i will conclude by commenting on the other key policy challenges of restoring competitiveness and stabilising the public finances. financial market turbulence evolves into a crisis the events of last september, centring around the failure of lehman brothers, were seminal, after which governments and central banks everywhere had to intervene in an unprecedented way and on a scale that was not conceivable beforehand. beginning in september, global interbank markets increasingly seized up, even at the very shortest maturities. the severe shortage of liquidity impacted significantly on the operations of banks everywhere. in response, policy makers across the world have taken exceptional steps through direct financial sector interventions, as well as monetary and fiscal policy responses. recapitalisations, deposit guarantee extensions, the provision of credit and liquidity, and programmes to deal with distressed assets were all undertaken to support financial institutions, while central banks cut policy rates to historically low levels and have introduced a range of non