ANALYSIS:THE IRISH Government's efforts to restructure the banking sector have been expensive and unpopular, but they have merit.

While it may offer little consolation to the Government, Ireland and the UK are the two countries that have led the way for the rest of Europe in sorting out chronic banking problems.

Although the two countries have taken markedly different approaches to resolving their respective banking crises, their actions share qualities that many other countries have lacked so far – decisiveness and willingness to take action. Ireland has come a long way. A banking system that was built around a core of six independent institutions – four heavyweight banks and two building societies – has been heavily restructured.

From the wreckage of this system, the Government has pulled one independent survivor, Bank of Ireland, and taken ownership of the rest.

The new banking system is dominated by the National Asset Management Agency, which will address the unwanted legacy of doomed property loans, and two so-called “pillars” – one, the merged AIB and EBS, in State control; the other, Bank of Ireland, in which the State retains a minority shareholding but which has also attracted precious private sector and foreign investment.

The system looks different. But it also acts differently, thanks to a sea-change in the approach to regulation and aggressive targets to shrink loan books and sell off non-core businesses.

These changes are painful – particularly for borrowers who want credit but cannot get it – but the pain is necessary to de-risk Ireland’s banks and build a banking system that will be fit for purpose.

The UK, meanwhile, has taken full or partial control of a number of banks, including Northern Rock, RBS and Lloyds. It complemented these interventions with an Asset Protection Scheme to address loan losses, and forced the sale of some banking assets to viable institutions.

The UK’s approach has been cleaner than Ireland’s – not least because the sheer scale of the problems here required more far-reaching measures – but it is too early to say which will ultimately be the more successful.

Where Ireland and the UK have acted, however, the rest of Europe has yet to see intervention of this scale. Some countries have yet to take the kind of action needed to convince markets that they can deal with the crisis.

The recent European Banking Authority stress tests have again highlighted the weaknesses in the banking system (namely in Greece, Portugal and Spain). But it should be remembered that these tests still did not take into account potential haircuts on banks’ holdings of sovereign debt. More proactive action will be required.

Greece and Portugal are now being subjected to the rigorous stress-testing that was carried out in Ireland last year. This will give clarity on loan losses, the additional capital required and the level of restructuring and consolidation needed in those markets.

In other countries, we are seeing that some second-round rescues are on the agenda. Some French and Spanish banks, for example, have needed a second round of recapitalisation by the authorities and some of Germany’s banks are currently exposed and are likely candidates for support measures.

With the crisis in its fourth year, inadequate capital and liquidity remain the key issues. We are likely to see European banks seeking more capital from governments; extensive deleveraging across the system; and wholesale bank consolidation and restructuring.

It is a sign of how much has changed over the last three years that the Lehman Brothers’ collapse, which most people consider triggered the financial crisis, has largely disappeared from public consciousness.

Few people even noticed that Lehman passed a huge milestone in early December, when the final scheme of arrangement of the failed banking giant was approved in a New York court.

It was a grim reminder of the scale of the Lehman catastrophe.

“This is the biggest, the most incredibly complex, the most impossibly challenging international bankruptcy that ever was,” said presiding judge James Peck. “This largest ever unplanned bankruptcy . . . started in chaos, accelerated the financial crisis and eroded confidence in the global financial system.”

There is still a lot of work to be done to resolve this crisis. It is to be hoped, however, that the decisive actions taken by the UK and Ireland can be used as a roadmap to greater stability and that the lessons from Lehman will be used to good effect.

Tom McAleese is senior director of Alvarez Marsal Europe, whose parent firm, Alvarez Marsal, is overseeing the dismantling of Lehman Brothers