is not constrained by lack of liquidity or lack of capital – and the open - handed provision of liquidity by the central bank even through the most acute phases of the crisis, supported by the ecb, have certainly worked to ensure that there has been sufficient liquidity, while the government has also poured in capital – could it be that more cautious mortgage underwriting ( reflected for example in lower loan - to - value ratios currently being offered by those banks still active in the sector ) have the effect in the downturn of depressing prices below the prospective new equilibrium ( as is assumed in some credit - focused models1 ), even if the latter is determined more by the fundamentals of demand and supply ( such as incomes, interest rates, demography, housing stock, construction costs ). second - guessing asset prices is not easy, but at least in the case of housing, pricing in nonboom times is not dominated by speculative considerations. that indeed is why the prices do not snap quickly to a new equilibrium. the duration of price corrections after property cf. gerard kennedy and kieran mcquinn, “ why are irish house prices still falling? ” central bank of ireland economic letter 2012 ( 5 ), april 2012 forthcoming. bis central bankers ’ speeches bubbles elsewhere has varied a lot : in japan, prices have been falling for 82 quarters, whereas the duration of decline in the scandinavian crises varied between 9 and 20 quarters. the irish price fall so far is more of an outlier in terms of depth than of duration. probably, the faster prices reach a new equilibrium, the better the outcome for the economy as a whole. wealth effects on consumption are one thing. 2 also – and this may be a psychological factor more than anything else – there is probably something in the widespread view that falling house prices increase uncertainty leading to more saving to bolster balance sheets and delaying the economic recovery. 2. the banks – not yet back in the market. “ decide speedily on loss allocation, remove failed management, insist on prompt and ample recapitalization. ” these are the standard policy recommendations for resolution of failed banks. some of these actions were taken very quickly in ireland, notably the first. but the scale of the banking losses is so high, relative to the capacity of the state, that its ability to err on the side of over - recapitalization was limited. by as early as mid - 2009, it was evident to close observers that the net long - term

banks ’ balance sheets is progressing : this is guided by two principles : avoid fire - sale losses and protect the core business of the banks ( ample liquidity cf. reamonn lydon and niall o ’ hanlon “ housing equity withdrawal, property bubbles and consumption. ” paper to be read to the statistical and social inquiry society of ireland, 17th may, 2012. bis central bankers ’ speeches to support new lending is assured ). the process will reduce their need for wholesale funding, but in any case access of the banks and the sovereign to funding is now closely interlinked. possibly the slowest part of the adjustment so far has been the resolution of the distressed residential mortgages. on the assumption that financiers would aggressively pursue delinquent borrowers, the central bank ’ s initial priority here was to protect the consumer against unfair harassment and to give time for balance sheet repair and adjustment in the finances of the distressed households. some lenders have been aggressive, but overall we now feel that the main banks have been too slow to organise themselves sufficiently for the very large and complex task of engagement with delinquent borrowers with a view to getting their mortgage book back into performance, with realistic loan modifications where – and only where – necessary, and not shying away from foreclosures in the btl segment in cases where this proves inevitable. the central bank has been working intensively with the banks over the past six months to ensure improvements here, something which will definitely be needed when the new insolvency legislation is in place. 3. speed of fiscal adjustment. with the economic downturn well under way, the need for fiscal correction in ireland was already clear before september 2008, and the budget of october 2008 got the process away to an early start. of course the fiscal pressures were greatly amplified by the overdependence on bubble - related sources of taxation which evaporated at the same time as the sharp weakness in global export demand of 2008 – 9. thus the automatic stabilizers kicked in and the deficit increased sharply even as adjustment measures were being implemented. has the troika programme caused the fiscal adjustment to be protracted? yes indeed it has, and this is fortunate indeed. the programme has allowed the reduction in the fiscal deficit to be a gradual one, with the scheduled deficit for this year higher than anywhere else in the eu. without troika financing, the fiscal adjustment would have had to be much more abrupt and disruptive.