companies must meet and have set fitness and probity standards for those who work in regulated financial institutions. our new statutory code is a balanced and proportionate approach to strengthening the governance of our banks and insurance companies and is an important milestone in the drive to ensuring high standards in the board rooms of regulated financial firms. we made a conscious decision to impose more demanding corporate governance standards than those in place in other jurisdictions because ireland has suffered more than most countries in the financial crisis and we need to get to grips with the home grown elements of that crisis. stronger remedies are needed here to shake up prevailing corporate governance practices and to improve the reputation of ireland as an international financial centre. putting a framework in place to ensure that the people operating at senior levels in regulated firms are fit and proper is also an important part of our work. fitness and probity are the broad headings for applying standards to individuals who work – or wish to work – in the financial services industry in ireland. they relate to an individual ’ s ethics, integrity and financial soundness but also their competence and capability. last year we sought new statutory powers to allow us to raise the bar in this area. we wanted to be able to take action where we have concerns about someone ’ s fitness and probity to do the job. we wanted to a consistent legislative methodology, applicable to all industries, that would allow us to prevent individuals from entering into senior positions in regulated firms, in our gatekeeper role. when our new powers are in place later this year, we will be able to act on fitness and probity issues. we will have the power to carry out a full investigation and, where appropriate, we will be able to suspend or remove an individual from a senior position in a regulated firm. we will have the power to prohibit individuals from holding senior positions in the financial services industry. the drafting of the new statutory regime means that all incumbent directors will continue in their positions and do not have to reapply under the new law. as you know the central bank plans to conduct a review of the fitness and probity of all existing executive and nonexecutive directors at the irish banks which have received government support. we will assess the incumbent directors against the new statutory fitness and probity standards, including, where it is relevant, their competence and track record in the period leading up to the financial crisis. we will use our new investigative powers, where appropriate, to ensure that the people in

matthew elderfield : the future of irish banking address by mr matthew elderfield, deputy governor of the central bank of ireland, to the 31st annual macgill summer school, glenties, 25 july 2011. * * * good afternoon ladies and gentlemen and thank you for inviting me here today to address this prestigious gathering. your invitation has encouraged me to spend a very healthy weekend sampling donegal ’ s excellent hill walking and has allowed me to see a little more of ireland, now that i have been in post for some 18 months. the top priority during that time has been the irish banking system. so, this afternoon i would like to set out for you in some detail the work that is underway at the central bank to ensure we remain on track to meet the targets for the banking system under our regulatory strategy and under the financial measures programme of the international monetary fund, the ecb and the european commission. in particular, i want to make reference to the update on our banking supervision strategy, published at the end of june, which set out some new thinking in a few areas in particular, such as provisioning policy and credit standards. to best explain our work in this short presentation, i will set it out under five main themes : the capital story, or, what is being done to strengthen the banks ; the deleveraging story, or, how the banks are being restructured ; our new rules for corporate governance and fitness and probity aimed at refreshing boards and senior management ; some recent thoughts on new standards to improve the management of credit risk ; and, finally, the work underway to improve supervisory practices at the central bank through the implementation of a new risk - based assessment framework. that is a big agenda and a lot of ground to cover in twenty minutes – so i will have to be brief, but i want to try to give you a flavour of the interconnected nature of the work programme. i think we are making good progress on all these fronts, but each area has its own timeline for completion and seeing results. capital adequacy – strengthening the banks the immediate challenge of rebuilding the banking system involves a number of interconnected exercises under the financial measures programme aimed at strengthening the capital position of the banks. these exercises include the independent loan loss forecasting and stress testing exercises carried out earlier this year to help establish the capital needs of the banks under the prudential capital assessment review ( pcar ). our pcar took place against the very difficult background of a severe crisis