john hurley : managing financial stability in ireland comments by mr john hurley, governor of the central bank and financial services authority of ireland, at the central bank of luxembourg on the occasion of the publication of its financial stability review, luxembourg, 28 april 2008. * * * it is a great pleasure to be here today at the launch of the financial stability review and on the occasion of the 10th anniversary this year of the creation of the banque centrale du luxembourg. i would like to thank governor mersch for the invitation to speak about arrangements for managing financial stability in ireland. as you may be aware, for the last five years, the central bank and an autonomous financial regulator have operated together in ireland within the one organisation – the central bank and financial services authority of ireland. there were various reasons behind this choice of structure. a key consideration was the sharing of responsibility for financial stability, realising the synergies that existed between the central banking and financial regulation functions. other advantages included optimising the use of technical skills, benefiting from economies of scale in the provision of shared services and promoting communication between both areas. a key consideration was the sharing of responsibility between the central bank and the financial regulator for financial stability. the new organisation was notable for two reasons. first, it established a single financial services regulator. the second notable aspect of the new organisation was the location of the financial regulator within the broader central bank and financial services authority of ireland. this reflected the fact that, prior to the re - organisation, the central bank had been the main locus of expertise in these supervision activities in ireland. the end result is an organisation that consists of two constituent parts, each with their own responsibilities. both sides are bound together, however, by integrated membership of the central banks ’ board of directors and the financial regulator ’ s corresponding regulatory authority. although both parties have their own responsibilities, there is a shared high - level objective of contributing to financial stability. the central bank has an explicit legal mandate, in both domestic legislation and under the maastricht treaty, to contribute to financial stability both in ireland and across the euro area. the financial regulator contributes to the work of the central bank in discharging its responsibility in relation to the maintenance of overall financial stability. it makes this contribution in two broad ways. first, it maintains confidence in the solvency and safety of individual institutions. second, it protects and informs consumers. although the central bank ’ s and financial regulator ’ s roles in contributing to financial

6 ] a growing share of investment is gradually being directed towards intangible assets. [ 7 ] this might not be fully accounted for in national and firms ’ accounts. firms tend to invest less in a declining and ageing economy, unless labour could be replaced by capital. finally, production in advanced economies is gradually shifting from manufacturing to services, [ 8 ] where equipment matters less. weak investment since the crisis has been accompanied by slow productivity growth across virtually all advanced economies. labour productivity growth had already begun slowing well before the crisis. since 1995 it has averaged 0. 3 % per year in italy, compared with 1 % in the euro area as a whole and 2 % in the united states. there are many underlying reasons for this decline in productivity growth, so let me focus on two : the role of technology and population ageing. evidence suggests that the failure of firms to adapt to the ict revolution has played a central role. this may be why a relatively large number of very small firms are not growing, [ 10 ] and the resulting resource https : / / www. ecb. europa. eu / press / key / date / 2019 / html / ecb. sp190907 ~ 81df41228e. en. html 1 / 4 9 / 9 / 2019 growth and competitiveness in the euro area misallocation may contribute to the productivity gap across countries. some see the decline in the rate of radical innovation as a key factor in the global decline of productivity growth, simply because new ideas are becoming harder to find. [ 11 ] others claim that the current lull can mostly be attributed to the depth of the great recession, [ 12 ] or to the fact that innovation comes in waves, and the economy has only recently begun to commercialise discoveries from fields such as nanotechnology, genetic engineering and quantum computing. in any case, innovation is changing the nature of production and employment, with digitalisation having already transformed how we do business. automation, in particular, is replacing labour in certain jobs, particularly in manufacturing, but it has also raised demand for highly skilled professionals in other areas. [ 14 ] both of these processes are likely to contribute to higher productivity growth, but also to higher income inequality in the future. a more troubling scenario is one in which artificial intelligence focuses exclusively on automation. if it provides small productivity improvements over human activity it may destroy more jobs than it creates – take automated call centres as an example. [ 15 ] while