“Building resilience now, for individuals, governments and banks will serve us well for future downturns” – Deputy Governor Ed Sibley

• Regulation has been successful in improving the safety and soundness of banks and other financial services firms
• Notwithstanding progress, legacy issues remain including stock of non performing loans
• Focus remains on addressing legacy issues and building resilience into the system during good times to mitigate the effects of the inevitable future downturns and shocks

At an event in Trinity College Dublin this evening Deputy Governor, Prudential Regulation, Ed Sibley spoke about the financial system a decade on from the start of the financial crisis.

In his comments, Deputy Governor Sibley traced how a litany of factors contributed to the global financial crisis, leading to complex international and domestic regulatory reforms.

While acknowledging that these reforms have increased the resilience of the system, he detailed some of the persistent legacy issues that the Central Bank sees in the financial system, including the findings of its recent work on culture and behaviour. He said that these factors continue to present risks to the system and hamper the rebuilding of public trust.

On the improvement in the resilience of the financial system, Mr Sibley said “Regulation has been successful in improving the safety and soundness of banks and other financial services firms, and reducing (but not yet removing) contingent taxpayer liabilities connected with failure. To take one important and tangible example of what this means in the case of the Irish banks, we have demanded increases in the quantity, and quality of capital which banks hold to protect against losses that could be triggered by a negative shock.”

Recognising the legacy of this crisis, he said the associated human cost was immense. He said “the effects are still being felt today by too many – such as those still directly affected by high levels of personal debt and indirectly by, for example, the dysfunction that still exists in the housing market.  The emergency brake applied to housing construction in 2008, is still being felt acutely today.”

On the legacies of the crisis, he highlighted the remaining high level of non-performing loans and capability issues in critical areas, including in IT risk management.  Furthermore, he said “resolution plans are not yet fully implementable, meaning that there is further work to be done to remove implicit taxpayer support for the larger banks.  As we have recently reported, banks also have work to do to improve their cultures and the levels of diversity at senior levels.”

On the outlook for the financial system, he said “Even as the sun is shining today, there are clouds on the horizon. One can hope that future storms are not as severe as the last one, but storms there undoubtedly will be.  Building resilience now, for individuals, governments and banks will serve us well for future downturns, whatever the cause may be.  It will also help with the pressing need to restore trust in the system, a foundation of which is that financial institutions are trustworthy. “

He emphasised that “All of the actions taken during the crisis, and the changes made in its aftermath are to support the vital, public interest mission of the Central Bank. That is to safeguard the stability of the financial services system and protect consumers.”

To conclude he said “My hope is that in 10 years’ time, we will still remember the banking crisis and the lessons from it. But that between now and then we will have navigated the many challenges ahead and more successfully weathered the inevitable shocks that will occur, than we did 10 years ago.  This will require continued diligence, building resilience, a willingness to listen to different voices and challenge the assumptions we are relying on – it is inevitable that not all of them will hold.”