to adopt even tougher capital rules in the future, but to push back their start date and in the meantime use relaxation and / or deferral of prudential capital standards as a countercyclical stimulus to the economy, perhaps like the roosevelt administration apparently did in the new deal. the st augustine solution seems to suffer a number of defects, however. it creates an even bigger eventual capital ascent for the banks. doesn ’ t the yet bigger capital mountain ahead cast a long shadow and still encourages hoarding? indeed, it seems that one lesson from the basel implementation process is that transition periods have only limited value as markets anticipate their end point and put pressure on banks to be early adopters : to be fair to the industry, this was a point they made at the time. but most fundamentally, the st augustine approach suffers from the fact that the compelling logic of basel 3 has not really changed and that there is every possibility the banks need more capital to get through their current travails, not just some future ones. the contrasting treatment is the schwarzenegger cure, to be specific the approach which involves a muscular saviour arriving from the future to protect the present day. the answer here is to fast forward basel 3 implementation and immediately bring forward the full future requirements of 2018 to the present day of 2013. the argument here 5 is to get it all over with quickly and avoid a half - decade of anaemic growth caused by constrained lending as banks slowly meet basel 3, hoarding capital and deleveraging along the way. this prudent, conservative approach has a lot going for it and is appealing to a micro - prudential regulator. in ireland we have sought to put the loan losses in the banks behind them by rigorously capitalising for future projected losses. our tool has been the stress test, in its capital shortfall variant : you project forward losses over a three year period under a severe stress scenario, calculate the shortfall that arises against a prescribed hurdle rate and, crucially, require that to be filled now. in ireland we went a step further and used an outside party, to come up with a wholly independent calculation of projected loan losses. this lead to a capital requirement that was €8 billion higher than that projected by the banks themselves. that is the equivalent to 4. 9 % of irish gdp. in uk gdp terms, the amount would have been £76 billion. this is clearly a significant number no matter which way

have fallen by 30 per cent, while the combined receipts from stamp duties, cgt and corporation tax have fallen by 58 per cent over the same period. in total, just over half of the revenue loss since 2007 reflects declines in these three categories. along with the collapse of tax revenues, an expansion of government spending – partly driven by policy, partly by the automatic response to a deteriorating output and employment situation – resulted in the sudden emergence in ireland of a sharp fiscal deficit, after years of surpluses. i don ’ t need to dwell today on the robust, measured and appropriate policy response in ireland that has stemmed and begun to reverse this fiscal set - back. instead, i want to note the striking extent to which uk fiscal trends up to 2009 have paralleled, albeit in a more muted way, those of ireland. as i understand it, the recession in the uk has also been characterized by a fall - off in tax revenues and a rise in spending which, though not quite as sharp as in ireland, have together resulted in the emergence of a deficit of comparable proportions as a percentage of gdp ( in this case following a number of years where the deficit ran at around 3 per cent ). uk tax revenue too has been sensitive not only to the economic cycle, but also to the level of housing market and financial sector activity. in terms of corporation tax, for example, revenues from the financial sector have typically accounted for around 25 per cent of the overall corporation tax take, while the housing sector has provided revenue in much the same way as i have described for ireland. uk treasury estimates suggest that receipts from taxes linked to these two sectors rose from around 3 per cent of gdp in 2002 – 03 to 4¼ per cent of gdp by 2007 – 08 and accounted for around half of the increase in total current receipts over this period. receipts from the two sectors are projected to decline to around 2¾ per cent of gdp in the current fiscal year, down by over one - third as a share of gdp. public spending has also been growing, not least designed to offset some of the downturn in other spending. in summary, in both countries, the collapse of the housing and credit booms has had a major impact on the public finances. for ireland at least, the lesson has been that our taxation system needs to be on a firmer footing than in the past. british and irish banks and the property bubble – home and abroad while tax incentives undoubtedly played a part in the irish story, however