dynamics depend on the difference between the nominal interest rate and nominal gdp growth, the debt - to - gdp ratio is also sensitive to the interest rate on the public debt, which depends on market confidence. if financial markets believe that the government will not have any problem rolling over its debt in future years, interest rates will be lower and it will be easier for the government to service the debt. conversely, market concerns about debt sustainability will raise interest rates, making it more difficult for the government to borrow in the markets. 14 hence, expectations are self - fulfilling, permitting both a good and a bad equilibrium. to facilitate a smooth exit from the programme, it is therefore important that financial market concerns about the future debt service burden of the irish sovereign are allayed. continued sound implementation of the programme is crucial, while developments at the european level can also be helpful. i have already noted the importance of economic developments in europe to ireland ’ s growth. in addition, european policy announcements can also have a significant impact on market confidence and the irish sovereign ’ s ability to re - enter the markets. in this regard, markets responded positively to the 29 june eu summit statement and the announcement of the ecb ’ s programme of outright monetary transactions. 15 irish sovereign yields declined sharply, facilitating limited bond issues since then. however, these positive developments depend crucially on market sentiment, which can change rapidly. any new development leading to a reassessment of euro area risk by financial markets could result in an abrupt reversal of the recent declines in yields. the 29 june eu summit announcement of the potential future use of the esm to recapitalise banks following the establishment of banking union could reduce the total nominal level of debt. however, the timeframe for implementation of the esm and uncertainty about the amount of banking - related public debt that would be eligible, were the esm to be applied retrospectively, are unclear. for ireland, greater certainty on this issue could provide support for successfully exiting the programme in 2013. the announcement also included a reference to examining the situation of the irish financial sector. this has raised expectations of a possible reprofiling of the promissory notes, on which the government makes an annual payment of €3. 1 billion, or 2 per cent of gdp. agreement that results in a more favourable time profile of payments would improve the see “ rettung fur den musterknaben ”, der spiegel, january 7, 2013, p. 28.

by the manager itself, it is not, or not mainly, the possible default of the manager that should concern regulators. on the other hand, the actions of asset managers may affect the financial system and the general economy through their systemic consequences on market developments. the key questions are then whether, to what extent and under what conditions non - bank intermediation can amplify market movements and determine instability. it is, therefore, essentially a macro - prudential question. understanding and measuring such risks will require data, research and careful reflection ; tackling them is likely to require new or reinforced supervisory tools and, quite possibly, a broader mandate for supervisory authorities. why do we need a macroprudential framework for the non - bank financial sector? we shall start by briefly reviewing certain macro - stability issues and the reasons why they may have become more significant than in the past. i shall focus on three main issues of concern : ( i ) pro - cyclicality, ( ii ) the size of non - bank financial institutions, and ( iii ) systemic liquidity risks ( ‘ runs ’ ) and leverage risks. let me tackle the pro - cyclicality issue first. the collective behaviour of asset managers, insurers and pension funds can lead to undue amplifications of market volatility. 1 empirical analyses show that institutional investors ’ trading may cause substantial temporary price effects, both at the asset level and at the aggregate level. 2 during downturns, trades by institutional investors in financial distress may turn into fire sales, and a temporary price effect may be further magnified so as to put severe pressure on market liquidity. 3 this amplification effect can have wide - ranging negative repercussions on the banking sector, on households ’ savings, on firms ’ funding, and ultimately on the entire economy. a clear example was the outbreak of the financial crisis, when a complex network of connections through derivatives and shadow banking activities turned $ 500 billion of losses on sub - prime mortgages into $ 4 trillion of write - downs on assets at global level. 4 see for example chan l. and lakonishok j. ( 1995 ), ‘ the behavior of stock prices around institutional trades ’, journal of finance 50 : 1147 - 1174 ; keim d. and madhavan a. ( 1997 ), ‘ transactions costs and investment style : an inter - exchange analysis of institutional equity trades ’, journal of financial economics 46 : 265 - 292 ; jones c