goal of current banking policy as has been mentioned elsewhere. apart from the pressure on the sovereign, the capital position of the banks has, as is wellknown, been placed under pressure by actual and especially prospective loan losses. naturally, long - term lenders to banks need assurance as to the adequacy of the banks ’ capital position and this means not only that the banks ’ capital has had to be increased – and this has been done on a very large scale over the past two years – but that investors need more and better information about the portfolio of the banks. the lengthy process of determining the nama - related loan losses and the time taken in some cases to meet the central bank ’ s capital target set out in the prudential capital adequacy review pcar announcement of march 30, 2010, and revised at the end of september, has tended to muddy communication around the capital adequacy of the irish banks. there is market concern about tail risk in the banks [UNK] portfolios. this, together with the heightened market uncertainty prevailing since the end of april, certainly argues for higher percentage capital targets. and, while the external experts have found no fault with the methodology used for this year ’ s pcar stress test, the next exercise, which takes place early in 2011, will both dig deeper where possible, and take account of evolving economic and loan performance developments and prospects over the year. as already indicated in the past couple of days, it is clear that addressing both the capital ratios and the pcar exercise will be key elements of the programme being negotiated at present with the eu commission and the imf in liaison with the ecb. capital is an indispensable multi - purpose buffer against unexpected risks, though it is costly, especially for dealing with tail risks. there is another dimension along which tail risk can be lowered, thereby further increasing confidence of investors on a less costly basis. this falls into your area as accountants, because i am talking about accounting and other information disclosed to the market. i have already railed elsewhere against the backward - looking loan - loss provisioning practices encouraged by international financial reporting standards ( ifrs ) and still all too pervasive in the reporting by most of the irish banks. i find it unsatisfactory that expected losses in many parts of the portfolio are clearly higher than the provisions already taken, because i fear that this evident and in some cases explicit discrepancy may awaken doubts in the

##s : the volatile nature of the irish macro - financial system and the history of crises suggests a debt target that should be materially below the appropriate level for a larger, more stable economy. of course, a target for the stock of public debt should be appropriately interpreted in the context of the wider public sector balance sheet, with due allowances for the dynamics of various types of financial and non - financial assets ( including public capital ) and the range of contingent and implicit liabilities. in relation to the cyclical budgetary stance, the pursuit of macro - financial stability requires that the government runs a counter - cyclical fiscal policy. in addition to the mechanical operation of the automatic stabilisers that are embedded in the dynamics of tax revenues and transfers, a government may need to take further discretionary measures to tighten budgetary policy during phases of robust economic growth. the development of a counter - cyclical fiscal strategy should also strike the balance in the allocation of surplus revenues between the proposed rainy day fund and reducing the gross stock of public debt. in addition to ensuring that the fiscal balance is set at a cyclically - appropriate level, the government can use additional tools to mitigate overheating pressures, including the deployment of cyclically - varying expenditure taxes. determining the optimal counter - cyclical fiscal stance may soon be quite relevant for budgetary policy if the economy hits full employment. for instance, the macroeconomic implications of the projected further expansion in public investment during 2019 – 2021 that is signalled in the summer economic statement depend on whether and when the economy attains full employment. while additions to the public capital stock can be expected to raise the productive capacity of the economy and / or assist in the attainment of social objectives over the medium term, the process of public investment acts to raise aggregate demand in the near term. while the demand - raising impact of public investment can be stimulative during periods of economic slack, a surge in public investment under conditions of full employment requires counter - vailing measures to limit the risk of costly over - heating dynamics. alternatively, stretching out a planned public investment programme over a longer horizon can limit pressures on the absorptive capacity of the economy. finally, it is important to note the complementarities between counter - cyclical macroprudential and fiscal policies. 2 in one direction, a robust macroprudential policy framework mitigates creditdriven cyclical shocks, easing the burden on fiscal policy. in the other direction, counter -