john hurley : financial stability and recent market developments in ireland opening statement by mr john hurley, governor of the central bank & financial services authority of ireland, to the joint oireachtas committee on finance and the public service, dublin, 30 january 2008. * * * good afternoon chairman and members of the committee. thank you for inviting us to meet with you today. i am accompanied by tony grimes, the director general of the central bank. mr patrick neary, the chief executive of the financial regulator is accompanied by con horan, the prudential director of the financial regulator. with your agreement, in my opening remarks i would like to recall the background to the current market turbulence and outline our approach to financial stability in the central bank and financial services authority of ireland, to summarise some of the main points from our recent financial stability report, and to talk a little about the recent market developments and their effects here in ireland. mr. neary will outline how the financial regulator discharges its responsibilities in this context. after several years during which financial market conditions were extremely buoyant, international financial markets have experienced a substantial correction and considerable volatility over the last 6 months. this episode began with a significant heightening of concern globally, from mid - 2007 onwards, about investors ’ exposures to mounting losses in the us subprime mortgage market. these concerns proved serious enough to disrupt a variety of financial markets, including those markets which banks access for their funding. the result internationally has been a severe disruption of banks ’ liquidity flows and heightened concerns about financial stability. it is against this background that we present today our current assessment of financial stability in ireland and outline our role in contributing to stability in the domestic financial system. what is financial stability? let me begin by briefly defining financial stability. financial stability exists where the various components of the financial system, such as financial markets, payments and settlements systems and financial intermediaries ( such as banks ), function smoothly and without interruption and with each component resilient to shock. in simple terms, a stable financial system is one that is able to absorb shocks. instability emanating from a financial crisis can be very serious - there have been many examples of financial crises in the past in various countries that proved to be costly in terms of economic disruption and loss of output and employment. co - operation between the central bank and financial regulator on financial stability issues i will now briefly describe the institutional arrangements governing financial stability in ireland.

evolution and duration of the current episode is still uncertain, it is difficult to draw firm conclusions at this early stage. nevertheless, it is of course prudent at this time for all jurisdictions to examine whether there are lessons that can be learned. in that context we will be informed by what will emerge from the examination, currently taking place at the level of eu finance ministers and internationally, that may help avoid a repeat of recent events. it is not the intention to rush to judgement on these matters ; this would not make sense. they need careful consideration and this is what is taking place. many measures already have been put in place both here and at the level of the eurosystem, long before these international credit problems arose. these measures have helped our own banks remain robust in the face of the international credit problems and they retain a strong shock absorption capacity to deal with risks that have emerged. i would now like to hand - over to patrick neary, who will deal more specifically with the role played by the financial regulator.