Professor Philip Lane:

I would like to make a general observation on whether this time is different. I will say a little about whether we are going back to the situation we had in the mid-2000s before I bring in Mr. Sibley, who leads our prudential supervision, on the specific issue of bank bonuses and bank pay levels. It is important to say that the economy is intrinsically volatile. In the mid-2000s, there was excessive optimism that Ireland would never face a recession, that prices were only going one way and that we were unique in some sense. Then we had a horrible, very severe and protracted crash. As the Deputy has indicated, it caused a great deal of pain for people who lost their jobs. Those who were unlucky enough to be of the age to take out mortgages in the mid-2000s had to contend with all of this pain. As a result of this country's high debt, everyone is now paying higher rates of tax. Those taxes are not being used to fund hospitals and all of that. They are partly being used to fund the costs associated with the bailout. There is no doubt that much of the work we do is aimed at avoiding a return to that situation. I am pretty sure that is the reason we work in the Central Bank. Much of what we are doing seeks to make sure the banks have enough capital, which basically means they are not leveraging themselves too much. We are avoiding that. With the mortgage rules, we are trying to avoid the desperation that is caused when credit pushes prices higher and people think they have to get in to avoid taking on too much debt. We are working hard to avoid a spiral between credit and house prices.

We have also seen a change in the nature of the financial system. As the Deputy knows, because the banks are more severely regulated and have had to deal with so many legacy issues, a great deal of land and many office blocks and rental apartment buildings are being bought by non-banks. Global firms are searching the world for good investment opportunities. Prices here will be driven higher because of that global capital. My point is that this is not just about the domestic banks which caused the problem the last time. Now the financial system has non-banks. The system we regulate here has a lot of internationally focused operations where pay levels are high. Then we have our approach to the domestic banks. As the Deputy has indicated, pay levels constitute a particular issue for the State-owned or State-backed domestic banks. Mr. Sibley will speak about this.