. its newbury correspondent reported that “ quantitativeasing started as a red - hot favourite and had little trouble maintaining his unbeaten record. ridden with plenty of confidence his task was made easier when tail of the bank came to grief at the second last. his trainer said ‘ i was delighted with the way he went through that testing ground ’ ”. rather like the mpc, the owners of quantitativeasing, winner of all three of his races in 2009, have yet to decide how many outings he will have in 2010. they are waiting for race conditions to become clearer. the bold action, taken both at home and abroad, helped to end the collapse in confidence and spending last year. but equally bold action will be needed to prevent a similar crisis from recurring. the origins of the crisis lay in our inability to cope with the consequences of the entry into the world trading system of countries such as china, india, and the former soviet empire – in a word, globalisation. the benefits in terms of trade were visible ; the costs of the implied capital flows were not. the new entrants adopted a strategy of expanding manufactured exports to create employment. high rates of saving depressed domestic demand. so substantial trade surpluses were required to keep total demand in line with supply. equally, the countries importing those manufactured goods ran trade deficits and required low saving rates to maintain balance in their economies. everyone seemed to gain. high - saving countries created employment, and low - saving countries enjoyed faster consumption growth as cheap imports meant that living standards rose by more than the increase in production – worth around half a percentage point a year in the united kingdom. these were the benefits of greater trade. but the pattern of poor countries saving a lot and rich countries borrowing was not sustainable. the consequences of our inability to cope with these capital flows did not show up in the usual macroeconomic indicators such as growth, unemployment and inflation. overall balance in each of the major economies was maintained. rather, the massive flows of capital from the new entrants into western financial markets pushed down interest rates and encouraged risk - taking on an extraordinary scale. banks expanded their balance sheets and new instruments were created to satisfy the search for yield. in the five years up to 2007, the balance sheets of the largest uk banks nearly trebled. the build up of risk came to threaten the stability of the entire financial system. capital flows provided the fuel which the developed world ’ s inadequately designed and regulated financial system then ignited to

we will encourage a clear strategy, better specialist skills and operational capabilities and a more determined effort to work through the existing stock of troubled loans to try to recover or resolve individual cases. broadly speaking, these three work streams – balance sheet and sectoral restructuring, capital assessment and troubled loan workout – remain core elements of the strategy to improve the functioning of the banking system. a fully functioning and revived banking sector is essential to the economic recovery of ireland in order to provide credit to individuals and businesses. it is in ireland ’ s interest to see a profitable banking sector returning to full health. there have been some encouraging signs, such as the willingness of private investors to take stakes in bank of ireland and the ability of the banks to make a limited return to the debt capital markets. however, a key goal must be sustained profitability for the sector. in this respect, the outlook remains difficult, with low levels of domestic economic activity and compressed net interest margins. an early exit from the guarantee will help to normalise the sector and reduce a drain on profitability. continuing efforts are also needed on cost control. clearly the path ahead remains a difficult one and progress will inevitably continue to be slow given the significant dislocation that has occurred to the banking sector and the economy as a whole. supervisory and regulatory reform if banking sector recovery is perhaps the central bank ’ s top strategic objective, close behind it is the process of continuing to reform regulation and supervision. significant progress has been made on this front since i first set out my thoughts on this subject in march 2010. at that time, i drew the analogy that you can ’ t referee a premier league match with one linesman and no red card in your pocket. in other words, that it ’ s important that the central bank has the resources and powers needed to do the job. i ’ m pleased to say the good progress has been made on both fronts. the central bank was significantly under - resourced in terms of front - line supervisors, enforcement professionals bis central bankers ’ speeches and policy staff. we have now completed a phase of significant growth and in fact have revised downwards our target staffing numbers from 735 to approximately 685, with some further reductions planned in future years as a result of efficiency improvements and completion of some key responsibilities. we also continue to encourage improvement in staff quality, through rigorous hiring and probation procedures, in - house training and various quality assurance mechanisms. ireland is also making good progress in developing a set of robust powers. the