The simple answer is: the economy is in a very different place today than when the pandemic started about two years ago. Back then, the shock to the global economy was unprecedented, and the uncertainty about its economic ramifications was enormous. Governments and central banks responded to this shock with an unparalleled amount of fiscal and monetary stimulus. This policy support, together with vaccine rollout, was instrumental in setting the global economy on the path to recovery. Looking back from a financial stability perspective, banks’ ability to fulfil their role as credit providers to the real economy without interruption was an additional factor that contributed to the recovery. This was mainly possible thanks to substantial capital buffers built up since the Global Financial Crisis (GFC), which increased banking sector resilience, and to policy support, which helped borrowers bridge their liquidity and income shortfalls. Macroprudential policy provided additional support, by turning expansionary in most countries for the first time since the GFC, easing capital requirements and directly encouraging lending. Today, the conditions that brought about this macroprudential policy accommodation no longer subsist. According to our monetary policy assessment last week, the global economic recovery is expected to continue, although somewhat subdued by the economic consequences of the war in Ukraine. Growth rates in many advanced economies are projected to remain above average this year, and unemployment rates are falling back to pre-pandemic levels. At the same time, however, financial system vulnerabilities are rising in many countries.

for instance 2021 stress tests conducted by the EBA (EBA publishes the results of its 2021 EU-wide stress test | European Banking Authority (europa.eu), consulted on 21 March 2022), and the Fed (Federal Reserve Board - Federal Reserve Board releases results of annual bank stress tests, which show that large banks continue to have strong capital levels and could continue lending to households and businesses during a severe recession, consulted on 21 March 2022). 10 Cf. IMF, Global Financial Stability Report, October 2021. 11 Cf. SNB, Financial Stability Report, 2021, chapter 2.2.  corrections in real estate prices represent a key source of risk from a financial stability perspective. In several countries, real estate price growth has increased since the start of the pandemic, and has been higher than can be explained by fundamental factors. For instance, the residential price-to-rent ratio, a simple measure of real estate valuation, lies above its long-term average in many countries. 12 This has been accompanied by higher mortgage lending and, in some countries, by an increase in lending risks. 13 Overall, these developments have made real estate and mortgage markets more vulnerable to shocks, such as a sudden increase in interest rates or a deterioration in economic prospects. There are several reasons behind this marked increase in real estate prices. They include tight housing supply, a probable increase in housing demand due to the pandemic itself, and the historically low interest rates that have prevailed in recent years.