central bank. the 2003 legislation did create the risk of ambiguity with regard to which entities were responsible for what. certainly, communication between the macroeconomic specialists assessing systemic risks and the micro prudential supervisors dealing with individual banks was not fully effective : each side felt they would have acted more vigorously had they been more aware of what the other knew. but that probably reflected a lack of mutual understanding of the methodology and professional language as between economists and supervisors more than the institutional separation, which was by no means rigid. in the end, senior officials in both institutions, as well as many elsewhere at home and abroad, were too optimistic about the strength of the economy and the irish banks. one should recall that several other central banks and financial regulatory authorities suffered similar failures in the run - up to the crisis. but ( with the exception of iceland ) they had not allowed the scale of their banking systems to get so completely out of control as happened in ireland. bis central bankers ’ speeches the report ’ s section on crisis containment includes an assessment of the 29 september 2008 decision to guarantee substantially all of the liabilities of the banks. while several other countries followed suit in subsequent days with more limited guarantees, the guaranteeing of subordinated debt of the banks was clearly a mistake ; the formal guarantee, backed by legislation, of all long - dated debt was also unnecessary and bound to constrain the authorities ’ ability to restructure or wind - down failed banks before the expiry of the initial guarantee. with the benefit of hindsight – had the regulatory authorities had any notion that heavy losses could be involved – an alternative strategy ( mentioned in a footnote on page 132 of the may 2010 report ) of putting anglo ( and inbs ) into liquidation on september 29, while standing behind the rest of the system, should have been more favourably considered. given how resistant external authorities subsequently proved to be to the imposition of losses on unguaranteed senior bank debt of failed banks, external partners might have responded to such an idea with compromise proposals that might have alleviated the subsequent pressures on the irish exchequer. more generally, greater consultation with eu partners would have been highly desirable and could have helped ireland to be less on the back foot in subsequent negotiations. despite the passage of time, i see no reason to alter the assessments i made in may 2010. 1 accordingly, extensive changes have taken place within the central bank to ensure that the identified shortcomings have been removed as far as possible. while

measures that impose ( flexible ) ceilings on loan - to - value ( ltv ) and loan - to - income ( lti ) ratios are designed to limit the risks of over - borrowing by households and over - lending by banks. more generally, the financial system will be more resilient, the more diversified are sources of funding ( across banks, non - banks and markets ), the greater the share of equity and other loss - absorbing instruments in liability structures and the more tightly controlled are maturity mismatches. turning to fiscal buffers, the running of budget surpluses that fund some combination of reducing the stock of public debt and building up a rainy day fund of liquid assets would allow the government to implement a stabilising, counter - cyclical fiscal expansion in the event of a future downturn. if fiscal buffers are not built up in good times, there is a risk of repeating the costly experience of past episodes by which economic downturns were amplified by pro - cyclical fiscal austerity. the latest data show that the unemployment rate in june 2018 stood at 5. 1 percent ( see figure 1 ). this is substantially below the 5. 8 percent average rate for 2018 projected in the government ’ s stability programme update 2018 ( spu2018 ) that was published in april. it is also substantially below the ( 5. 3, 5. 4 ) range for the unemployment rate during 2019 - 2021 in the government ’ s macroeconomic projections. just two years ago, spu2016 projected that the average unemployment rate in 2018 would be 7. 0 percent and the range for 2019 - 2021 would be ( 6. 0, 6. 6 ) percent. the improvement in the labour market is very welcome but does suggest that the economy may be more cyclically - advanced than is assumed in spu2018. central bank of ireland - unrestricted figure 1. unemployment rate 18 % 16 % 14 % 12 % 10 % 8 % 6 % 4 % 2 % 0 % note : data from central statistics office. figure 2. external balance current account balance - before and after adjustment € billions - 10 - 20 current account balance ( ca ) note : data from central statistics office. modified current account balance ( ca * ) central bank of ireland - unrestricted in terms of cyclical indicators, it is also helpful to keep an eye on the current account balance, which captures the gap between national income and national expenditure. figure 2 shows that the suitably - adjusted measure