Mr. Vasileios Madouros:

I will add a couple of points. The Deputy spoke about inflation and the importance of reaching the 2% target. That is because inflation has had such a large cost for society. The risks of not reaching the target are that the costs of high inflation are prolonged and, if that high inflation were to become entrenched in the economy, the policy action to bring it back down to 2% would be even more painful. That is why actions have been taken by the ECB to respond to the extraordinary combination of shocks that have led to the large increase in inflation.

It might be worth setting out how we think about bank profitability. As the Central Bank, we do not care about profits in and of themselves. We care about sustainable business models in financial institutions and sustainable levels of profitability. These are needed to ensure that the financial system is in a position to support businesses and households. When the Central Bank looks at profitability, we look at it through the cycle. Prior to the recent increase in interest rates, there was a period of low interest rates. Net interest margins were compressed and the return on equity for Irish banks was below the European average. More recently, we have seen an increase in profitability. To some extent, this has been due to timing and a sharp adjustment in the interest rate cycle. As the Governor mentioned, we expect that there will be some factors that will lead to profitability settling down. For example, deposit rates have responded already. We expect to see more depositors shifting from overnight to term deposits.