to other central banks, we publish our report to provide the information and analysis so that financial market participants and the wider public are well informed about the economic and financial environment, with particular attention to the associated risks. armed with this information, they should be better able to make informed decisions about financial planning and decision - making. our intention is that the report conveys the importance of a stable financial system and that it should stimulate discussion of the current financial stability climate. our overall assessment in our most recent financial stability report, published last november, is that financial stability risks have, on balance, increased since the publication of the previous report in 2006, as a result of the more challenging international environment and its implications for domestic financial institutions. our central expectation, based on an assessment of the risks facing both the household and non - financial corporate sectors, the health of the banking sector, the results of stress testing of the financial system and the outlook for the economy is that, notwithstanding the international financial market turbulence, the irish banking system continues to be well placed to withstand adverse economic and sectoral developments in the short to medium term. there are, however, some key risks to this central outlook for financial stability : first, by any standard, ireland is one of the most open economies in the world and the downside of this is that the economy and its financial system is highly exposed to events arising in the world economy and financial markets. second, on the domestic front, the outlook is for a deceleration in economic growth in 2008 along with some rebalancing in the composition of growth. it is important that this moderation of activity takes place at a pace that is conducive to the health of the economy and supports the stability of the financial system. the labour market continued to perform strongly during 2007, albeit with clear evidence of more moderate employment and labour force growth than in the recent past. the outlook is for weaker, although still positive, employment growth in 2008, mainly due to an expected decline in construction sector employment. while this is likely to lead to some increase in unemployment, the unemployment rate is expected to remain low by international standards. third, in the housing market, increases in interest rates, which up to the middle of last year had risen from low levels, have clearly reduced the affordability of housing over the past two years. there has also been a levelling off of house price increases followed by some decline. the latest published data show that prices were down about 6 per cent

burden is often over - stated as a contributor to the required fiscal adjustment. indeed, the interest cost of servicing the notes injected to recapitalize the banks only accounts for about one - tenth of the fiscal adjustment now in prospect over the next four years. i will not rehearse here the details of the scale on which capital has been injected into the banks with which members of the committee will be fully aware. it is important that relevant foreign investors have this information at their finger tips so that they can run their slide - rule over these figures so that they can see the extent to which buffers have been created to absorb not only the loan - losses that can be fully expected to occur, but also to take account of any additional loan - losses over - and - above what has been projected as likely over the coming couple of years. i sense a concern in the market that some other problems might be hiding somewhere. possibly this concern is due to the way in which the later nama loan tranches turned out to involve more severe haircuts than the first lot. specifically though, attention has naturally focused on the residential mortgage book, and the scale of the loan - losses that need to be allowed for here. although the actual accounting provisions taken by the banks on this portfolio are small, the central bank has insisted that allowance be made for much higher loan losses. the stress case loan - loss ratio to 2012 of 5 per cent used by the central bank for the irish residential loan books to determine required capital levels is well outside historic experience in ireland. despite recent trends in arrears and reschedulings, there is as yet no hard indication that the stress levels would be exceeded. in anticipation of next year ’ s update of the pcar exercise, the central bank is embarking on a more granular analysis of the this part of the portfolio in particular to track its evolving performance and determine whether the expected loss amounts remain sufficient. undoubtedly there are many stressed households with burdensome mortgage debts, not least in the buy - to - let category ; the policy challenges that this presents in terms of achieving workable and fair solutions are more complex than the mere issue of the likely loan - losses that might be involved. presumably over - capitalizing the banks could help build confidence, but this is not something which the state can be lightly asked to do, given the pressures on its finances. indeed, the market ’ s perception of the stressed condition of the sovereign is surely weighing also on the