philip r lane : drivers of change in the banking sector speech by mr philip r lane, governor of the central bank of ireland, to the banking and payments federation of ireland, dublin, 23 may 2017. * * * good morning. i would like to thank the banking and payments federation of ireland ( bpfi ) for the invitation to speak to you today. i plan to cover a broad range of topics but with one common theme – that of change and the primary drivers of change that are affecting financial services and banking in particular. i will consider three broad driving forces. first, while acknowledging that much has been done, further steps are needed to resolve the continued legacy issues remaining from the crisis period. second, banks face an evolving macro - financial environment, including shifts in the international regulatory architecture and substantial uncertainty about the future paths for the domestic and international economies. third, financial innovation is already disrupting the sector and poses both opportunities and risks over the coming years. legacy issues it is nearly a decade since the onset of the financial crisis. while the economic recovery is well established, ireland is still deeply affected by the legacy of the crisis. high outstanding debt levels and the substantial stock of non - performing loans ( npls ) pose ongoing financial stability risks. equally, consumers are entitled to fair treatment from banks and other credit intermediaries, including in relation to the management of loans that originated during the boom period. the central bank considers these issues from both systemic and firm - level perspectives. system - wide tools such as the new suite of macroprudential capital buffers and macroprudential mortgage measures are designed to increase the resilience of banks and households and reduce the risk of future financial crises, especially credit - driven housing bubbles. at an over - arching level, a fundamental protection for consumers lies in ensuring that the financial system is stable and that the firms that operate within it are financially safe and sound. in relation to firm - level supervisory strategies, our approach focuses on protecting consumers through seeking to ensure their fair treatment. we also have clear prudential supervisory strategies that aim to ensure banks operating in ireland have business models that will be capital accretive over the long term ; are well governed, with robust risk management and control arrangements ; have sufficient financial resources, including under plausible but severe stress scenarios ; and, finally, are on a path to being resolvable in the event of failure. notwithstanding the improvements that have been made across financial services, remaining issues demonstrate the need

continues to be required, and i therefore call on all jurisdictions to intensify their commitment to achieving greater alignment. for its part, the central bank of bahrain will continue to provide its own strong support to initiatives aimed at narrowing these differences. with respect to accounting standards, the policies set by aaoifi, the accounting and auditing organisation for islamic financial institutions, provide a solid framework for islamic financial institutions. bahrain is one of the few jurisdictions to have made its standards mandatory, although others use them as guidelines. further promulgation of these standards would help increase consistency in accounting and sharia standards. similarly, in the field of financial regulation, we support the work of the islamic financial services board in developing various prudential standards, and would encourage other jurisdictions to also commit to implementing these standards over time. and finally, the third critical pillar under this heading is that of developing standard contract designs and associated documentation. progress here will help address the concerns sometimes expressed about the impact of different sharia rulings on the structuring of instruments, and the lack of certain types of instruments. it will also be instrumental in encouraging more liquid islamic capital markets. this critical third pillar, of course, is in many ways why we are here today, and i should like to pay tribute to the sterling efforts now under way within the industry, with the leadership of the iifm, to tackle these issues. i am now hopeful that real progress in this area is now within our grasp. you will hear during this conference updates on the initiatives now underway, in conjunction with the international capital market association and the international swaps and derivatives association, to develop sharia compliant hedging instruments, as well as standardized repo and commodity murabaha contracts. these will be important breakthroughs for the industry, and we very much look forward to their realization later this year. these initiatives have gained good support from the industry, but i would also call on regulators to help support these initiatives : we too can also play an important role in bringing about greater alignment, by encouraging the use of standardized contracts and documentation, where appropriate. on this positive note, i should like wish you a productive conference, and to thank you for your kind attention.