Transcript of Governor Philip R. Lane interview with Joe Brennan, Irish Times

30 November 2018 Interview

Governor Philip R. Lane

Joe Brennan: The latest Irish Fiscal Advisory Council (IFAC) report has said that repeated failures to prevent unbudgeted spending has left the economy exposed, that the Government’s medium-term budgetary plans are not credible and, while the short-term outlook for the economy is strong, a slowdown in the coming years is inevitable. What do you make of those comments?

Governor Lane: I think it’s important to say that IFAC and the Central Bank now have different roles. We would have consciously changed in recognition that the official watchdog now is IFAC. It’s important for IFAC to take a view, say, on expenditure. We wouldn’t do that. So, our view would be about the funding. So, we definitely would have a view on the overall budget balance, the level of public debt.

But, basically, the actual level of spending, so long as they raise the revenue to cover it, we’re going to be silent on because that’s IFAC’s job. It’s not the Central Bank’s job to take a view on whether we should spend more or less on, say, the health sector. I’ll bypass that comment about the level of expenditure.

Then the issue is if the only factor in deciding a budget was economics, then the economics would say the budget plans should be more ambitious, that moving into a more substantial surplus at this time would be economically advisable.

There have been some unexpected elements in the budget. Corporate tax revenue has been unexpectedly high. If you go back over the years on what they thought the interest payments on the Government debt would be, it’s been unexpectedly low. So, there’s definitely been some positive surprises.

But it must be the case at some point the system has to be able to absorb negative surprises. I don’t think I have a comment about the timing of that. But this goes back to what I’ve said throughout my career: that Ireland is a small, volatile economy. We can’t make policy on what we expect. We have to make policy also considering what if we’re wrong, what if the world turns out to be more adverse than we expect.

At the moment there are good reasons to be especially mindful of that, given Brexit, trade, tax and, then, for the world, the tightening of financial conditions. Under those circumstances, I do think running a more significant surplus would be economically advisable. But in the end, it is up to the political system to make that decision.

Joe Brennan: What are the main risks that you see facing the Irish economy?

Governor Lane: I usually give four. The four are straightforward but they usually interact with each other. It’s important to say that it is a perfect storm when all four kick in.

So, the foremost risk in the world in the sense of being something that’s right in front of everyone’s face is whether the world is going to adapt to the tightening financial conditions. We have the Federal Reserve tightening. We have China moving towards more domestic spending. In the last 20 years, significant savings out of emerging Asia have kept world interest rates low. If they start to, as they plan to, have a more domestic-orientated economy, that support for low interest rates may fade.

In Europe, while there is no immediate plan to move on interest rates, the current intention is to end the loosening [monetary policy] phase at end this year. This is something which has been signalled for a long time. But when you think about whether financial markets are ready to adapt to tighter conditions, many financial stability reports will have that flavour.

Then you have two other risks which are global but they would affect Ireland. I think the risk factor with trade is mixed. Yes, the US-China trade dispute is not disappearing. But there is no sign of a global trade war. You saw Mexico, Canada and the US come to a deal. I think it’s a risk factor but I don’t think it’s looming super large that we’ll have a global shift towards protectionism.

Tax – if you have a change in global tax systems, a move towards raising tax where the customer is rather than the producer is, smaller economies, export-orientated economies will experience a revenue loss. Clearly, Ireland would be affected by that.

And then Brexit. It’s negative under all scenarios but clearly a ‘hard Brexit’ is of more concern than a ‘soft Brexit’.

Joe Brennan: The UK parliament is set to vote on the EU withdrawal agreement on December 11th. You’re obviously telling companies that you regulate to prepare for a ‘hard Brexit’. What would be the main near-term and main long-term impacts of a no-deal Brexit?

Governor Lane: From word go it’s always been clear that uncertainty was more around trade and goods – whether there would be a customs union, a free-trade agreement or whatever. It has always been reasonably clear that services would operate under some form of equivalence regime and especially in financial services.

So, the financial services sector has been most prepared for this. There will be financial market volatility – in sterling, especially – depending on the day-by-day assessment of the likelihoods of ‘hard’ versus ‘soft Brexit’.

The more immediate unknowns are about the physics of this. Will there be long queues at ports? Will there be forgotten areas or underappreciated areas like medicines and foodstuffs, etc, where we’re not too sure about how everyone is prepared? So, the disruption under a disorderly Brexit may be in more in those areas.

But in terms of finance, I think the system is prepared for it. We had the European Banking Authority stress test results a few weeks ago and that stress scenario was more severe than a Brexit-type stress.

Joe Brennan: Looking at the euro-zone economy, economic indicators have deteriorated during the course of this year – including purchasing managers index (PMI) data last week. Do you think that the timing of the European Central Bank’s quantitative easing (QE) coming to an end next month may be a bit unfortunate?

Governor Lane: I don’t think we would think of it as the end of QE. This is the end of a loosening. So, if the decision is confirmed in December, what we’ll have is the end of net [bond] purchases. We bought, more or less, €2.5 trillion of assets. We will still keep those and we’ve committed to reinvestment. So that’s a pretty big long-term loosening of monetary conditions. As long as we keep that stock high it’ll have a substantial effect on financial conditions.

Remember, the deposit rate is minus 40 basis points. The commitment is that that is not going to move through the summer of 2019. It’s very important, especially for people on a tracker mortgage to appreciate there is no immediate tightening. It’s the end of loosening, which is different. So, we are maintaining the level of current loose conditions at least through the summer.

We are seeing the data being weaker than expected but that’s partly because 2017, especially the second half of 2017, was better than expected. So, there was a little bit of mean reversion, especially in exports.

The reading of the data right now is the euro zone economy is chugging along. The labour market is continuing to tighten. It’s not the case that there’s a reversal in employment trends. As you know from the work we published about a month ago, there’s a lot of belief that the famous Phillips curve is non-linear: that as unemployment gets down, wage pressure really accelerates.

You’re seeing in all the communication from anyone on the [ECB] governing council that we need to maintain very accommodative monetary policy, but calling a halt to net purchases at the end of this year is not a tightening. It’s the end of loosening.

Joe Brennan: While it’s the ECB guidance that the money from bonds, as they mature, will be reinvested, the governing council hasn’t discussed what ‘an extended period of time’ means.

Governor Lane: That will clearly be on the agenda…

Joe Brennan: In December?

Governor Lane: I don’t know about December, but in the coming weeks and months clearly more will have to be said about the reinvestment policy. It’s important to provide more guidance on that, but the key anchor of monetary policy is forward guidance on the interest rate. Like with the Fed. The Fed still has elevated balance sheet. It’s in run-off but they didn’t want for the run-off to move along before they started to raise interest rates. It’s an interesting topic but it’s secondary to the core anchor now, which is interest rate policy.

Joe Brennan: The current guidance on interest rates is that there will be no increase through the summer of 2019. Do you think there’s a high possibility, or even a probability, that ECB president Mario Draghi’s eight-year term will come to an end in October next year without any increases?

Governor Lane: I don’t think that’s going to be a factor in how the decision is made. It’s good to have forward guidance. The phrase ‘through the summer’ means it’s not going to be before then. But when precisely it’s going to be after that, we’ll have to wait and see. Otherwise there would be excessive focus on particular meetings. It’s giving you a reasonable calendar guidance without being overly specific about when it’s going to happen, which, of course, would be data dependent. It’s not going to matter about who’s chairing a meeting.

Joe Brennan: A month-and-a-half ago, people were talking about oil prices heading towards $100 per barrel. It’s come right back and heading towards $50. That’s largely a result of oversupply in the market, but what is it also telling us about the underlying global economy?

Governor Lane: I think that’s an interesting issue. I think the economics of the global oil market has moved fundamentally with shale. In other words, historically, you could have a fairly narrow perspective, first of all, with world demand and, then, with supply you look at a small number of suppliers in Opec (Organization of the Petroleum Exporting Countries). And then geopolitics was an added layer to that.

But in the last decade with the marginal production with shale – which is quite elastic, in and out of the market – what we’re seeing is less persistence in the oil price. So, there’s more volatility and less persistence.

But I think the fundamental economics is less persistence.

Joe Brennan: You’re three years in the job this week. What has surprised you most about the organisation?

Governor Lane: I don’t think I would have been particularly surprised by much, as I would have been, throughout my career, a close student of central banking. In terms of what I know now and didn’t know then – and it’s very hard to appreciate from outside – is the range of activity that goes on in here.

Ireland is a small country. It’s mid-sized from a Eurosystem point of view. But we have a large financial system. We have the local system which is important for the local economy and local consumers. But we’re also the supervisor of a lot of externally-facing banks, insurance companies and investment funds. Maybe the surprise was the volume of work that gets done. For me, as I’m quite interested in all aspects of finance and central banking, it’s an attractive feature to have that scope. What would be surprising to the person on the street maybe is all of this less visible, internationally-focused dimension of what we do.

Joe Brennan: The most up-to-date figure for full-time equivalents in the Central Bank is about 1,815 from July…

Governor Lane: We were a shade under 1,500 when I came in. We’re going to be around 1,900 at the end of this year and we will be more than 2,000 in the next few years. We recently released our strategic plan. The last decade has been a phase of reconstruction, initiated under Patrick Honohan, but I do think the last few years has brought us to a situation, including that inevitable expansion of numbers, that we now think we’re in a phase of consolidation.

We’ve built a fully functioning Central Bank. We’ve reorganised internally. We now have this split of financial regulation between prudential regulation and financial conduct. Within the central banking wing of the house we’ve added a standalone financial stability directorate.

With those moves and making sure that we’re staffed up in areas such as authorisations for Brexit, authorisations in securities and markets, with consumer protection and so on. We’re now in a situation where we want to be in terms of being a rigorous regulator and supervisor for both prudential and conduct purposes, not just with the local firms but with internal firms.

Brexit has been an opportunity to demonstrate to everyone that we are a regulator of substance, that the rest of Europe can stand assured that we’ll hold those firms to account. Whether it’s the international or domestic firms, everyone can be assured that we don’t just expect these firms to be prudentially sound, we expect them to adhere to the highest conduct standards.

Joe Brennan: On Brexit, the last figure you gave was that there were over 100 applications have been filed with the Central Bank for authorisation. Is there a more up-to-date figure?

Governor Lane: There was a surge after the summer, but it’s probably stabilising now. We have some very big operations coming and more bread-and-butter operations. It’s a mix. Some of these will be significant enough to be under ECB Single Supervisory Mechanism supervision.

As you now, the funds industry, asset management industry, is a big industry here, as is insurance. It’s across many sectors, payments as well. It’s a significant step-up, but proportionate. It’s not the case that it’s transforming the bank.

Joe Brennan: The criticism has been made that the Central Bank may not necessarily be open to investment banking or esoteric activities moving to Ireland under Brexit.

Governor Lane: I think that’s an observation. I don’t think it’s the case. Our responsibility is to be rigorous supervisors of anything that is permitted. There’s no internal policy saying any line of business is to be discouraged. It is not a policy. That is just not true.

What is true is that we are firm in making sure that we adhere to what’s call regulatory convergence. That any firm is not going to get a different answer here than anywhere else in the EU27. I do think if you talk to firms that have engaged with us, they will agree. I don’t really think that’s a valid criticism. I did hear it hypothetically. But by and large, all sorts of things are coming here.

Joe Brennan: For applications that are coming in now, would they be running a fine line being approved before the Brexit date in March of next year?

Governor Lane: By and large the speed of these processes is driven by the firms. Typically, at first engagement we give them views, then they officially apply but typically those applications go through rounds of revision. It’s up to the counterparty firm to move as quickly or as slowly as they decide. I think we’re demonstrating that we can authorise. We’re getting through the pipeline. Any lack of authorisation by the end of March will not be due to any delay on this side.

Joe Brennan: In February of this year, your candidacy for an ECB executive board position of vice-president was pulled and the belief was that you were being lined up for another position. ECB executive board member Peter Praet’s term is ending next year. Will you be allowing your name to be put forward?

Governor Lane: I was clearly happy to go forward last year. I think it remains the case that any members of the system, whether it’s a governor or another person in the system, should be ready to come forward if called upon. It’s for the Eurogroup to take the lead on those decision. It’s appropriate that the elected governments of Europe make these decisions. But they should be able to call upon anyone who they’d like to call upon in that process.

As you know, last year I was happy to go forward. It’s the case that I and anyone else in the system should be available, if called.

Joe Brennan: Were you surprised when deputy governor Sharon Donnery recently put her name forward for the SSM chair position?

Governor Lane: No. Obviously myself and Sharon are very close and we talked about it. It’s not the case that I was taken by surprise. It’s basically the same point. There are a range of senior positions. The way the Eurosystem works, and the European Union more widely, is that it’s a shared responsibility of all member countries to help run these organisations. It’s important that people are willing put their names forward. It’s not always easy to have that spotlight. But we are respected members of Eurosystem and seen as a high performer. We are committed as a bank, going beyond individuals, to being as influential as we can be in the Eurosystem.

Joe Brennan: In the event that you are successful in securing an executive board position at the ECB, do you think an internal Central Bank candidate should succeed you as governor?

Governor Lane: The Central Bank of Ireland has a lot of independence. But that independence is rooted in delegation from government. I don’t think it would be appropriate for me at all to comment on that selection process. What I would say is that the Central Bank is a team. We have a very good team of senior leadership and, even going deeper, a very good bench of talent in the bank. What that means is that sometimes people get pulled elsewhere. But we can be very proud of the fact that the Central Bank has so many high performers.

Joe Brennan: Your predecessor, Patrick Honohan, apart from overhauling the structure of the Central Bank, will probably be remembered mostly for the mortgage caps that were introduced before he left. What do you think your legacy may be?

Governor Lane: Coming into this position, I had several goals. One was at the organisational level to complete the process of building the post-crisis Central Bank. While there’s always more to do, we’ve done a lot and there’s a clear strategy for the next few years, as expressed in the recent strategic plan. That’s going as I intended.

Second, the mortgage rules are an important way for the Central Bank to do our core job, which is preserving financial stability. As you know, there was a big project to bring them in under Patrick, but we’ve since refined the rules. But I do think the rules now are structurally well designed. The values can always be recalibrated, depending on circumstances. But the design, where we have a different system for first-time buyers than for second-time buyers and for buy-to-let, where we have to two dimensions – loan-to-income as well as loan-to-value – is very important compared to other countries.

We are reinforcing that, having turned on another key element of the financial stability framework this summer, which is the countercyclical capital buffer. In a monetary union, you need to be proactive with credit policy. So, having built the machine to support financial stability is quite important. But that goes hand in hand with two other dimensions. One is prudential. It’s important to say the lead now is the SSM [for banks] with the lead responsibility in Frankfurt, but that is very much a partnership with the supervisors here in this building. When the SSM has to evaluate Irish banks it’s important to take into account Irish-specific circumstances.

And the other leg of it is conduct – making sure that all of that is also supportive of consumer protection. It’s very important to say that consumers are not protected if there’s a threat to financial stability. Many people in this country were so hurt and damaged during the financial crisis, so the first step in consumer protection is the resilience of the system.

So I, and the wider leadership, have a coherent view of what the Central Bank is up to. We have that system-wide tool box. We have the intense focus on resilience of individual banks. And we also have the dedicated conduct arm. It’s not a high enough bar to say banks are profitable and well capitalized. We are placing the bar higher. We’re also saying we expect them to adhere to highest conduct standards and decisions are protective of consumers.

So, coming back to the legacy question, in all of that I think the tracker examination has been a pivotal project. In that project, which was launched before I got here, we are demonstrating that we don’t let go. A lot has been done and there’s still a bit to go, but we will make sure that all of these banks undo the harm that was caused through redress and compensation to those who have been affected. This is a signal to the future that we mean it. We’re prepared to get into difficult territory to deliver on that. And, of course, there’s still enforcement investigations against all of the main banks involved.

Joe Brennan: Were you personally caught off guard this time last year by the level of public and political uproar around the tracker issue?

Governor Lane: There were two levels to this. This was a well worked out project since before I got here. But there was a crunch last Autumn. So, the first source of surprise and disappointment was that some of the banks were non-compliant. We had some banks who were not taking the process sufficiently seriously, they were not moving quickly enough, they were not being sufficiently accommodative of consumer interests.

Internally we were determined, no matter what, to bring this to a conclusion. But I think , no doubt, that that has been accelerated by the Oireachtas and by the Minister [for Finance Paschal Donohoe] shining the spotlight on the banks.

As the supervising regulator we have to operate within a tight legal framework, so typically we don’t disclose much until something is concluded. But with trackers, we were providing periodic updates. But, of course, when you put out information that is partial and incomplete, that trigged concern in the political system about what is going on. That was reinforced by the Oireachtas committee’s public hearings with the banks and some of the individuals who were so hurt. I do think it was helpful in really converting some of these banks to the realisation that this is core to what they should be doing. They should be recognising that they have a duty of care to their customers.

There was a lot of criticism of the Central Bank, which I think now is fading as we’ve shown we’re able to deliver, as we’ve shown this examination is delivering for so many people. But at the time there were still a lot of open questions. I think it’s reasonable for the system to hold us to account. I think it’s reasonable for the system to be critical until otherwise reassured by us. But I do hope that now, and into the future, that as we provide a track record in delivering on consumer protection that the trust in us will be rebuilt. That’s clearly one of our targets. It’s perfectly natural, given the crisis, for the Central Bank to be distrusted. But then as the years accumulate and we demonstrate, whether it’s by maintaining financial stability or through delivering on conduct regulation, that trust can be rebuilt.

Joe Brennan: How do you feel about the fact that a number of people affected by the tracker scandal still haven’t received redress and compensation?

Governor Lane: I think there are two categories left. One bank has systems issues so they’ve gone more slowly than what would have been expected. And also, we double check and triple check, and through that we are discovering small groups of customers. I think these are customers who were not included earlier on and may end up being included and I think that just goes back to our determination to not forget anyone.

Joe Brennan: Are these customers emerging as the Central Bank carries out its own auditing of the banks’ examinations?

Governor Lane: It’s a mix of that and banks reviewing their own previous decisions, of saying ‘Let’s go back and review some of the earlier pools’. So, it’s partly driven by us and partly by some banks trying to make sure that they are consistent.

Joe Brennan: The figures we’re talking about now…

Governor Lane: We’re going to put out an update In January where we’ll give the end of December figures. I think there’ll be a little bit more to do after that, so it won’t quite be the final report in January, but soon enough in 2019 I hope we’ll get to a final report.

Joe Brennan: Do you expect the figures to go up by thousands?

Governor Lane: I don’t want to comment on that. But under any calculation, most have been paid out by now, or will be paid out by the end of the year. The extra groups, let’s see, because the size of that is in discussion.

Joe Brennan: When will the final report be published?

Governor Lane: In the early part of next year. Most banks are done with the validation process. There’s still a few to go.

Joe Brennan: Do you expect that any of the enforcement investigations into the five main banking groups relating to trackers will reach conclusion next year?

Governor Lane: We expect that.

Joe Brennan: All of them?

Governor Lane: No. The way it works is you have to accumulate a lot of evidence. You have to go through a lot of old emails, a lot of files, a lot of minutes. It involves interviews with key people. They know what they’re doing. There’s a large team of people involved. Executing these enforcement investigations successfully and with due timeliness, I think it’s going the way we expect.

Joe Brennan: Can you give guidance on how many enforcement actions will be taken next year?

Governor Lane: No.

Joe Brennan: The first public hearings in the Irish Nationwide Building Society (INBS) inquiry were held in December last year. It’s dragging on and there’s no line of sight of when even the first phase of the inquiry, around one of seven suspected prescribed contraventions, will finish. Did you expect it to drag on as much as it has?

Governor Lane: No. But there are particular reasons for delay and I don’t want to comment on those. But I think, looking at the larger picture, that this inquiry is proving to be quite important, even though this is all about events 10 or more years ago. But we have a long memory in the Central Bank and it’s important that central banks take a long-term view. So it’s very important that we do not let go of inquiries into governance failures. It’s really important for the financial system to appreciate that the Central Bank doesn’t have any statute of limitations in thinking about these things.

I went along to some of it myself and I read the transcripts. Putting people though oral investigations, with senior counsel probing reasons for stated patterns of behaviour and decisions, has revealed a lot. There’s been a rich amount of information revealed by this. I do think this mechanism of inquiry is very important.

Joe Brennan: You described earlier on the huge breadth of the work that the Central Bank does. A huge area of the financial services industry in Ireland is the world of shadow banking…

Governor Lane: Ok. Let’s pause on that before you ask a particular question. As you may know, the Financial Stability Board decided recently to relabel this world. I think it’s called non-bank financial intermediation. Because so much has come out of the shadows. Let me emphasise, we’ve been to the forefront of that. We publish as much as we can. We do research on this.

There have always been two meanings of shadow banking. One is that there’s something unknown going on and there’s been a lot of progress in trying to find out what’s going on. The second element is basically quasi banking, or non-bank provision of credit.

Joe Brennan: Obviously, a large part of what would have been included in the definition of shadow banking included investment funds, money market funds, which are highly regulated areas. The ECB back in 2009 ordered financial vehicle corporations (FVCs) to present data. The Central Bank of Ireland extended that to special purpose vehicles (SPVs) in 2015. Do you think there’s more work to be done to understand what’s going on in SPVs in Dublin?

Governor Lane: We’ve tried to be energetic in this, but there’s still more to be done. Let me emphasise, one of the steps is how much can we do versus cross-border cooperation. As you know, typically, the participants are not local – that there’s some foreign entity looking to raise funding through an Irish-listed vehicle and allocate that funding somewhere else. To fully understand – and this is something I’ve written about not just in my current role – what’s going on, more cross-border cooperation is needed.

Having said that, good data detectives can find out quite a bit. For example, the Bank of Spain have in their financial stability unit some very good data detectives who know how to look at listings on Bloomberg and so on and can work out the geography of what is going on. Equally here we’re trying to use as many different sources as we can to understand what’s going on. But, ultimately, because of the global nature of the non-bank sector, the data access is always going to be more limited than with banking.

Joe Brennan: The second-last FSB report on shadow banking highlighted in Ireland’s case, there was another area of about €470 billion of residual assets and the expectation was that the Central Bank would look in more detail into this. What’s emerged in that particular area?

Governor Lane: There’s going to be some material coming out pretty soon on that. But one category within that is treasuries of multinationals. We know that Ireland is a big holder of US securities. Multinational firms are now very big financial players. We know that these corporations are making a lot of money and have large balance sheets and that matters for interest rates, it matters for financial flows. So, understanding multinational firms is quite important for understanding the global flow of finance.

Joe Brennan: ECB president Mario Draghi appeared before the Oireachtas finance committee earlier this month. One of the headlines to come out of it was the fact that he said Irish banking was effectively a ‘quasi monopoly’. Do you see any signs of new entrants looking at the Irish market or is there any reason why they should be looking at the Irish market?

Governor Lane: I think what President Draghi said that day and what I’ve said – which I think anyone who looks at this would agree with – is that market forces here are going to be slow moving. At the margin we see some funds that may come in and want to do low loan-to-value mortgages. Within the banks, it’s important to say, there is more competition, there’s more dispersion in offers. There has been a movement down in lending rates.

But for this to be fully effective there’s a domestic component and a European component. The domestic component is some of the pricing factors behind high interest rates and low credit volumes are basically a result of the crisis. The calculated risk weightings on assets are backward looking. But as time goes by, we’ll have more years of post-crisis data, more years of profitability, more years of new lending not going into default. But that’s a gradual process.

At the European side, the more we have genuine banking union, the more interesting Ireland is going to be. European banking groups are subject to the same single supervisor. There’d be a greater ability to rely on common pools of capital, common pools of liquidity, a common deposit insurance, which would make it easier for a firm to enter one particular small country. A banking union and capital markets union will be important to develop geographic diversification in Europe.

But it comes back to us in terms of preserving financial stability. It comes back to the country having a predicable legal environment in terms of the ability to know what the laws governing banking are, and also in terms of the ability to enforce collateral, if needs be.

Joe Brennan: You said recently, when it comes to bankers pay, that there can be a good case to be made for performance-related pay. Has the Central Bank been asked to make any submissions as part of the Department of Finance consultation on remuneration?

Governor Lane: I think the Department of Finance would know our views, but I think in terms of the formal process, no.

Again, it’s important that this is not about performance-related pay in general. What we want is any such scheme should reward socially-desirable performance and punish excessive risk taking. We can’t have a system where if you lend excessively this year, you get a bigger bonus. Globally this is well understood and some of the ways to manage that is to have clawback clauses, to have long and slow pay-out mechanisms, so that the short term is not elevated over long-term stable performance.

Banking can be quite cyclical and so around the world the default solution has been to tolerate a degree of performance-related pay. But in designing those schemes, they should be rewarding socially-desirable behaviour and not excessive risk taking.

Joe Brennan: Do you think politically in Ireland there is much of a chance of any movement on performance-related pay in the next few years?

Governor Lane: I don’t want to comment on that. It’s up to the Government and wider Oireachtas to make that decision.

Joe Brennan: In dealing with non-performing loans (NPLs), are you surprised that the banks haven’t engaged in more financial engineering, like off-balance-sheet securitisations, rather than loan sales to help reduce their NPL ratios?

Governor Lane: Before we get to that particular point, it’s important to say that there’s been a lot of restructuring of mortgages. This goes back to a public policy goal of having repossession as a last resort, putting in place new legislation on bankruptcy laws and insolvency procedures and the work that was done here in the Central Bank on the code of conduct for mortgage arrears. There’s been a lot of support here to support banks to restructure mortgages. A lot has been done.

There are two dimensions now. One is what to do with un-restructured mortgages. I don’t know if un-restructured mortgages would be a great candidate for securitisation. So, one of the motivations for loan sales is to deal with those mortgages that haven’t been restructured.

For loans that have been restructured, you can make a case for securitising the flows of income under the restructure. Whether that’s done directly by a bank or indirectly by selling the portfolio to an investment fund, which then securitises the loans, is an individual commercial decision.

We’ve always been clear that neither we nor the ECB are requiring loan sales. I have said, and I think it’s important to say, that loan sales do have a role in terms of national risk reduction. Having some of these non-performing loans owned by investment funds diversifies our risk. If there’s a downturn in the future, it would have been a vulnerability to have all non-performing loans remaining on the books of the banks.

Joe Brennan: How do you find the daily grind of being the governor of the Central Bank versus your time at Trinity College Dublin?

Governor Lane: Essentially in a university setting, by and large, you’re working on your own. You have an individual programme of classes to teach, you have individual responsibility for your research, even if you do collaborate with others. But here, absolutely everything I do is based on teamwork. On a day-by-day or hour-by-hour basis, I get to interact with a wide variety of colleagues. You need to have a mindset that is flexible in that in any given day you may have to cover five or six different topics. You have to be interested in what you’re doing.

In a typical week I’m not here for one or two days because there are ECB meetings every two weeks, you have the Bank of International Settlements six times a year, IMF a couple of times a year, Ecofin a couple of times a year and other things. There is a significant travel schedule.

In no sense would I call it a grind. I have an amazingly privileged and interesting job. What is true is that it’s very scheduled. There is a cost in terms of your ability to have some discretion over your time to, say, watch such-and-such a football match. The single biggest restriction of the job is having very little very spare time.

Joe Brennan: Did you always want to be an economist? Were you particularly bookish in school?

Governor Lane: Yes. I started studying economics in fourth year [in school] in 1985. And it was always puzzling why this country was so gloomy. I was surrounded by smart people and was wondering why this economy was so dark and dismal. I was reading at the time about Japan being amazing, America being amazing and Ireland being so gloomy.

There are studies showing that people who come from difficult economies often end up being macro-economists. Argentina is full of amazing economists. Italy is full of amazing economists. If you come from a rich country, it’s less interesting.

The definition of economics is the allocation of scarce resources. Here in the boom, people studied less economics because there were no hard choices to make at the time, that everything was possible.

We’ve loads of really good economists that have come through recently, because it became really interesting again as a result of the crisis.