philip r lane : ireland's banking sector - overview, developments and challenges introductory statement by mr philip r lane, governor of the central bank of ireland, before the joint oireachtas ( national parliament ) committee on finance, public expenditure and reform, and taoiseach ( head of parliament ), dublin, 20 december 2016. * * * chairman, committee members, thank you for the opportunity to update you on conditions in the irish banking sector. i will first provide a brief overview of developments in the banking system. i will then discuss some specific challenges for banks operating in ireland and the structure of the irish banking system. thereafter, i will outline current ecb thinking on the european banking system and supervisory priorities. i will conclude by turning to some of the other issues that you have invited me to discuss. overview of banking system the irish banking sector can be partitioned between domestically - focused banks and internationally - focused banks. the domestic sector continues the process of repair and recovery. sustained progress has been made. banks operating in ireland are much better capitalised and have more stable funding models, but there remains more to do. the international banking sector is also continuing to evolve. having shrunk materially in the aftermath of the crisis, it is starting to expand again and this trend may be reinforced by brexit. the aggregate total assets of the domestically - focused banks stood at €274 billion in q3 2016, down 7 percent on the previous year. this contraction reflects the fact that asset disposals and loan redemptions more than offset increases in new lending. the decline in balance sheet size has reduced reliance on market - based funding, which has significantly contributed to the increased resilience of the banks to liquidity shocks. the low interest rate environment has also helped reduce funding costs, but together with shrinking loan books, has a negative overall effect on net interest income. while sovereign bond market yields remain compressed at present, the senior unsecured debt issued by irish banks continues to be more expensive compared with euro area and european peers. this is important in the context of the requirement under the new resolution framework for banks to raise debt that can be ‘ bailed in ’ ( i. e. converted to equity ) in the event of failure. at present, the capital instruments of irish banks are in the top quartile of peer group eu banks in terms of market yield, indicating higher relative risk. in this context, although irish retail banks continued to generate profits through the first

on f & p standards. i thank you all for your engagement with the review and support for the f & p framework, given it is one of the key tools we have for ensuring continued trust and resilience in our sector. progress, don't regress so let me return to the topic of financial services and the economy, in particular in the face of a period of structural economic challenge and change. i think the importance of financial services for the economy is clear. but if trust is the true currency of this system, and resilience is essential to providing financial services through the cycle, then i hope it is equally clear that it is in both the economy's and the sector's interest that is well - run and well - regulated. this i believe has been the consensus of the post crisis years. and, for me, the evidence of success is in how the financial sector has managed the inflation shock, the pandemic itself and the impact of russia's war in ukraine. as we look towards the challenges ahead, however, it appears to me that the consensus is at risk of slipping. and rather than progressing by securing stable growth, we risk regressing into the mistakes of the past. you won't be surprised to hear from me that if a trustworthy and resilient financial sector is in all our interests, then calling for lighter regulation or for lower standards or indeed howling at the moon of no regulation at all is in no - ones'interests. i recognise the importance of competiveness. in fact i believe it is imperative we in europe focus on improving productivity in order to deliver better living standards for our citizens. tackling productivity problems, delivering more innovative companies in europe, and financing the digital and green transitions, are all important challenges we need to address. 4 / 7 bis - central bankers'speeches but i humbly suggest that financial de - regulation is not the answer. the nyberg report, the honohan report, the banking inquiry are not historic documents but rather the story of our very recent past. a story echoing similar stories in many other jurisdictions, such as the financial crisis inquiry commission in the us, and of course the larosiere report in europe. driving growth through'lighter touch'financial regulation failed. rather than delivering better growth it led to one of the most growth destructive events of the last century. not to mention the human costs at the time and in the aftermath ; as well as the long