removing this cloud. over the previous few months, we at the central bank have been making a careful assessment of the likely bank loan - losses that are in prospect over the next few years. this is over and above the valuation work being carried out by nama, and which gives us a good fix on the likely recoverable value of the larger property loans. we have been working on the non - nama loans and figuring out their likely performance as they suffer from the impact of the overall economic downturn – part of it of course attributable to the global crisis, and not just to the bursting of our own bubble. this exercise involved working with the banks, but challenging their estimates of loan - loss based on our own more realistic – some may say pessimistic – credit analysis. ( i am over - simplifying the exercise, as it also looked at other elements of the profit and loss account over the coming years ). the conclusions of this exercise are worth emphasizing. to my relief, and slight surprise, it turns out that most of the banks started the boom with such a comfortable cushion of shareholders ’ funds that they would be able to repay their debts on the basis of their own resources. this includes the two big banks. it is because of this fact – that their shareholders ’ funds will remain positive through the cycle – that one of them, bank of ireland, has already been able to tap the private market for an additional equity injection. of course they do need additional capital to move forward, but, as has happened in the us and elsewhere, the government ’ s capital injections of last year into these two institutions looks like being well - remunerated. this takes account of the low prices being paid – much lower than originally envisaged – for the loans being transferred to nama. the nama purchases replace risky property - related loans with risk - free nama bonds and are part of the process of putting them on a solid foundation. by the way, knowledgeable experts on the property market assure me that, at the low prices they have paid, that organization now has a good chance of breaking even over the coming years, as indeed has been its stated intention all along. having calculated their likely future losses, we have now required the banks to rearrange their affairs to ensure that they have ample capital reserves to ride out this period of losses. they are responding with plans that raise additional capital reserves and reduce the scale of their less central activities

reluctant ( as indicated in my january 2011 speech ) to endorse further accumulation of indebtedness of the state in order to recapitalise the banks to insulate the financial system and the economy against tail risks. even if external insurance was not available, direct injection of the capital from external sources would have been a much better solution. however ( as has been seen again with the case of spain ) this was simply not on offer, limiting the possibility for decoupling the pressures of the banking system from those of the sovereign. global upward pressures have increased the amount of capital banks are expected to maintain as both market participants and regulators reassess the uncertainty and volatility surrounding bank asset valuations. and it ’ s not just a question of ratios : upgraded regulatory requirements will soon disallow some elements of what used to be counted as capital, placing further upward pressure. for ireland, the agreement with the troika requires irish guaranteed banks to hold sufficient capital not only to meet the crd ( international regulatory requirements ), but to have enough to absorb prospective losses over the period 2012 – 2014, based on the independent calculations of blackrock solutions, and the cost of selling - off non - core assets sufficient to bring the loan - to - deposit ratios of the banks back into a plausible range ( not more than 122½ % ), and to maintain the higher threshold of 10½ % capital ( even excluding elements of capital that are not regarded as “ core tier 1 ” ) in the base case scenario. this is what determined the additional capital requirements announced in march 2012. our assessment of the capital needs of the banks will evolve over the coming years. as i stressed here eighteen months ago, loan - loss projections following a big bust involve an irreducibly large element of uncertainty. at the central bank, we continue to research the determinants of loan losses. economic conditions ( including house prices ) facing the borrowing firms and households are not the only determinants. as we have been stressing in other fora, the effectiveness of the banks ’ engagement with their stressed borrowers, as well as the legislative and administrative framework for dealing with insolvency ( details of which are being announced by the government today ) are important factors. it should not be thought a paradox that a more engaged and holistic approach by banks, and a less rigid and costly insolvency framework can help reduce loan losses over time. meanwhile, given the final view of