Professor Philip Lane:

What the Senator has raised is a recurring theme in many discussions we have had, which is basically whether we understand and recognise what it means to be part of an international financial system. The Senator referred to a loss of control. There is a balance there. There is a recognition that we have an open border for the financial system. That is locked into the meaning of the EU. More broadly, the EU vis-à-visthe world has virtually open access in terms of the global flow of finance. People who think about globalisation think that a strong state is needed to counterbalance it. The view is that the only successful way to deal with globalisation is to have a strong state, including a robust central bank.

We spoke earlier about house prices and so forth. Many forces will influence house prices, commercial real estate prices, the role of real estate investment trusts, private equity firms and so forth. There are many forces that can influence the level of prices. It is not open to domestic control. What is under domestic control is ensuring that the system is resilient. Ultimately, we have options about deciding the amount of capital the banks must hold here and in respect of the mortgage rules the level of exposure of individual households to mortgage debt. This is not true everywhere. Ireland, partly because it had such a severe crisis, is much more advanced than other countries in recognising that the nature and volatility of having these open financial systems mean one must proceed on a safe basis by insisting on significant deposits, limiting loan-to-income ratios and making sure the banks have sufficient capital.