or more numerous failures due to investment mistakes. at the central bank of ireland, we will challenge irish insurance companies to demonstrate they have defined and implemented investment policies commensurate with their knowledge of the investment universe and their ability to sustain investment losses. we expect that the prudent person principle that is introduced by solvency ii will be given the weight it needs by insurers in ireland. one topic that was given no thought it seems in designing solvency ii is the revision of the conditions for authorisation. solvency i conditions for authorisations have been maintained in the new regime, and so their deficiencies have not been addressed. however the matter has become more acute since solvency i was a minimum harmonisation regime, which could be complemented by member states, whereas solvency ii is a maximum harmonisation regime, which cannot. in particular, there is no explicit provision for supervisory judgement on the proposed business model of applicants. in some jurisdictions, this is seen by supervisory authorities as legally preventing them from refusing authorisations or putting stringent conditions on them, even when their experience tells them otherwise. these problematic applicants, once authorised, can then avail of the single market to operate everywhere in the eu. european legislators should revise the insurance directives to give national supervisory authorities the leeway they need to protect european policyholders by denying or limiting authorisation when this is the appropriate course of action. let me now turn to the new and problematic elements of solvency ii. capital requirements of solvency ii have come, rightly or wrongly to define the new regulatory regime which will come into play in 2016. at least we haven ’ t gone to the extreme of banking regulation, where the overarching directive is called a capital requirement directive, or crd. but i contend that the emphasis given in european insurance regulation to quantitative requirements has gone overboard, and that the particular quantitative requirements of solvency ii are ill conceived. the capital requirements set up by solvency ii are clearly too complex. even the standard formula is in fact as complex as a default internal model. to what purpose, however? when one looks at the failures of insurance companies in europe over the past decade, or more narrowly, at those that befell ireland, which of these failures would have had a different course had the solvency capital requirement ( scr ) of solvency ii been in place in lieu of the solvency margin of solvency i? i ’ m afraid the answer is plain.

in hong kong sar. conclusions the financial crisis has once again highlighted the risk property market developments can pose for financial stability. this is an important reason why central banks pay great attention to the developments in the housing area, including to the evolution of house prices, the rate of credit expansion, the cost and availability of mortgages and so on. there is now great attention being focussed by policy makers across the world on how to best avoid a repetition of the crisis. unfortunately, the property bubble in ireland was particularly large, the resulting financial crisis was particularly severe, and the impact on the irish economy is likely to be felt for many years to come. it is therefore important that we in the central bank think particularly carefully about housing developments and whether they pose risks to financial stability. to do so, we need to think about what macro prudential policy framework is suitable to us. 33 in particular, we need to explore whether macro prudential tools such as those i have discussed may play a useful role in ireland. there is much work – which is highly technical and will involve regulators, economists, statisticians and lawyers working together – to be done. thank you for your attention. the lag is 1 year for transaction volumes, 2 years for price growth. see also igan and kang ( 2011 ), who find that ltv and lti limits in korea were related to declines in house price growth and transactions, and benito ( 2006 ), who finds that higher loan - to - value ratios were associated with greater house price volatility in response to income shocks. see imf ( 2011d ) for a discussion of the survey in fact, the european systemic risk board has recently asked its member countries to clarify and strengthen the macro prudential mandates of responsible national authorities where necessary : http : / / www. esrb. europa. eu / pub / pdf / recommendations / 2011 / esrb _ 2011 _ 3. en. pdf? 9697 eb49d4116f8ed269b4d95326217b bis central bankers ’ speeches references ahuja, ashvin and malhar nabar, “ safeguarding banks and containing property booms : cross - country evidence on macroprudential policies and lesson from hong kong sar ”, imf working paper, wp / 11 / 284. http : / / www. imf. org / external / pubs / ft / wp / 2011 / wp1128