the business plans which they agreed in order to receive the sanction of the european commission dgcomp for the state aid they received, to reach a net interest margin of 2 per cent. given they are constrained by contracts on the trackers, there is only a limited range of options for achieving this. only then can they build and hold sufficient capital to be compliant with international regulations, to be fully financially autonomous and not dependent on an implicit backstop of the state, to have the resilience to deal with future shocks and to serve customers properly. their recent return to profitability is modest and significantly dependent on provision write - backs rather than normal business profitability. the crisis continues to have serious legacy issues that cannot be resolved easily or painlessly. to mention just one example, ensuring that borrowers whose loans have been sold to unregulated firms do continue to obtain the consumer protections that they previously had is a concern which the bank has been to the fore in advocating. i am glad to see this reflected in legislation ( on which the bank has actively advised ) currently being enacted by the oireachtas. without detracting from the importance of appropriate pricing on the svr loans, i should not conclude without emphasising that delays and uncertainties surrounding the resolution of non - performing loans remains a much more acute problem. the latter problem is of course one which we have discussed in this committee repeatedly and on which progress remains damagingly slow. also, they are required by the terms of the business plans which they agreed in order to receive the sanction of the european commission dgcomp for the state aid they received, to reach a net interest margin of 2 per cent. given they are constrained by contracts on the trackers, there is only a limited range of options for achieving this. bis central bankers ’ speeches

is it good for the overall recovery of the economy on which the banks depend for their long - term success? admittedly, it is essential for the survival of banks that they achieve a sufficient return on the investment of funds, including equity ( much of it owned by the government, by the way ). if not, they will not be able to achieve and maintain the growing requirement for capital adequacy in the years ahead. the profitability goal has to take account of long - term considerations, and of the risks involved in lending, especially the actual and prospective losses on non - performing mortgage loans. nonetheless, personally, i would welcome a reduction in bank svr rates in current circumstances as a benefit to the economy at large. were it not for the firm conviction that the introduction of administrative control on interest rates in ireland would be bad for the country as a whole in the medium term – notably because of its stultifying effect on bank efficiency and its chilling effect on the entry of other banks – there could be a case for some government intervention. bis central bankers ’ speeches the svr contract the svr type of contract was the mainstay of irish mortgage lending for decades. it had the advantage of being adjustable in response to changing conditions, and as such insulated the lender from sharp rise in the cost of funding. 1 as such, it avoided the devastating squeeze on profitability which led to the insolvency of a large part of the us savings and loans industry in the 1980s. but the wording of most svr contracts meant that borrowers are vulnerable, not only to changing funding costs, but to many other types of influence which the lender judges to warrant a change in rates. the svr was increasingly replaced for new lending by the tracker mortgage, especially in the boom. this much more tightly defined interest rate contract protected the borrower against any interest rate changes other than those occurring to the ecb policy rate ( which is a rate at which the ecb lends a small amount of the funds required by euro area banks and which is adjusted to help ensure that the ecb meets its monetary policy objectives, principally with regard to euro area inflation ). whereas, pre - crisis, the irish banks were easily able to secure deposit and bond funding at close to the ecb policy rate, their ability to do so since the crisis has been constrained ( though recently improving ). because of this ( and because the spreads they set above the ecb rate