banks ’ balance sheets is progressing : this is guided by two principles : avoid fire - sale losses and protect the core business of the banks ( ample liquidity cf. reamonn lydon and niall o ’ hanlon “ housing equity withdrawal, property bubbles and consumption. ” paper to be read to the statistical and social inquiry society of ireland, 17th may, 2012. bis central bankers ’ speeches to support new lending is assured ). the process will reduce their need for wholesale funding, but in any case access of the banks and the sovereign to funding is now closely interlinked. possibly the slowest part of the adjustment so far has been the resolution of the distressed residential mortgages. on the assumption that financiers would aggressively pursue delinquent borrowers, the central bank ’ s initial priority here was to protect the consumer against unfair harassment and to give time for balance sheet repair and adjustment in the finances of the distressed households. some lenders have been aggressive, but overall we now feel that the main banks have been too slow to organise themselves sufficiently for the very large and complex task of engagement with delinquent borrowers with a view to getting their mortgage book back into performance, with realistic loan modifications where – and only where – necessary, and not shying away from foreclosures in the btl segment in cases where this proves inevitable. the central bank has been working intensively with the banks over the past six months to ensure improvements here, something which will definitely be needed when the new insolvency legislation is in place. 3. speed of fiscal adjustment. with the economic downturn well under way, the need for fiscal correction in ireland was already clear before september 2008, and the budget of october 2008 got the process away to an early start. of course the fiscal pressures were greatly amplified by the overdependence on bubble - related sources of taxation which evaporated at the same time as the sharp weakness in global export demand of 2008 – 9. thus the automatic stabilizers kicked in and the deficit increased sharply even as adjustment measures were being implemented. has the troika programme caused the fiscal adjustment to be protracted? yes indeed it has, and this is fortunate indeed. the programme has allowed the reduction in the fiscal deficit to be a gradual one, with the scheduled deficit for this year higher than anywhere else in the eu. without troika financing, the fiscal adjustment would have had to be much more abrupt and disruptive.

deposits. this is the essence of the prudential regulation of banks ; the objectives of which are the avoidance of banking crises and the protection of depositors. these objectives are both clear and, other than in the most exceptional of circumstances, achievable. what is problematic is to expect central banks to use their regulatory tools to achieve other objectives besides those of prudential regulation ; for example attempting to direct the credit allocations of banks. as with monetary policy, this will create conflicts of interest which are likely to bis central bankers ’ speeches undermine prudential regulation and make it harder to evaluate the performance of the central bank and hold it to account. 3. the operational independence of the central bank in common with many other central banks around the world, the bou has operational independence. in uganda this independence is guaranteed by the constitution which explicitly states that : “ in performing its functions the bank of uganda shall conform to this constitution but shall not be subject to the direction or control of any person or authority ”. what does operational independence actually mean in the context of the central bank and why is it important? in essence operational independence pertains to the independence of the central bank to set its monetary policy instruments, such as the policy interest rate, free of any interference from other persons or authorities, such as ministries of finance. it does not mean that the central bank is free to set its own policy priorities or objectives. whether or not the central bank should prioritise the control of inflation or some other objective is an inherently political question which must be determined by a political organ. often this will be determined by the legislature, with the policy objectives set out in legislation, as is the case in uganda where the bank of uganda act specifies the functions of the bou and places emphasis on “ achieving and maintaining economic stability ”. within the specific framework of politically determined policy objectives, a central bank with operational independence is free to set its policy instruments to best achieve those objectives. operational independence is regarded as being of fundamental importance in the institutional governance of central banks because of the notion of the “ time inconsistency ” of economic policy making. this refers to the incentives that policymakers with short time horizons have to take decisions which may generate short term gains but at the expense of long term costs, and the recognition that rational private sector agents will understand the incentives facing these policymakers and take actions which will circumscribe any short term gains without necessarily mitigating the long term