To date, this rise in house prices has not translated, on available estimates, into an overvaluation of residential real estate assets. That said, we must continue to monitor this market closely in case this risk materialises, and to analyse other facets of the conditions under which mortgages are granted that are less influenced by the collateral value. 24/29  A second relative facet is the effort that repaying the mortgage entails for agents that have incurred this debt. Once again, empirical evidence shows that loan-to-income and debt service-to-income ratios are relevant variables for determining the probability of mortgage default, although the low interest rate environment mitigates the risk. In any event, as more than half of new mortgage loans continue to be taken out at a variable rate, high loan-to-income ratios continue to be a source of possible vulnerability for households. However, in this instance too, mortgage lending standards appear to be prudent, with no evidence that they have recently eased. Third, an additional dimension that is also relevant for estimating the probability of default is the maturity of the mortgage loans granted. Longer maturities are usually related to more foreclosures. Likewise in this case, standards have become stricter following the crisis and have not eased in recent months. Empirical evidence further shows that it is the combination of some of these dimensions that may prompt disproportionate increases in the probability of loan default. These mortgages with very lax conditions in several dimensions have also become much less significant in recent years.

Similarly, banks should address the technology risk stemming from the impact of the adoption of new technologies on, for example, the probability of suffering cyberattacks, with extremely high potential effects on operational risk and banks’ own reputation. Lastly, climate change and the transition towards a more sustainable economy pose another key challenge. Although this affects all economic agents, it is particularly important in the financial sector. Banks face two types of risks in this area: “physical” risks linked to the direct effect of climate change on their asset values, and “transition” risks linked to the process of technological and regulatory transition to a more sustainable economy. In coming years, identifying, quantifying and mitigating these risks will require considerable effort, although the notable development of green sustainable financial markets in Spain in recent years should be highlighted. 2. Low interest rates and banks’ risk appetite In a low interest rate setting, there are greater incentives for economic agents to take on greater risk. The work of the macro- and microprudential authorities consists in ensuring that this greater risk-taking is not excessive and does not ultimately generate problems for financial stability. The authorities should use the various prudential instruments at their disposal to prevent this from occurring. The longer interest rates remain low, the more likely it is that risk-taking may become excessive. Clearly, deposit institutions are not immune to this, especially when profitability is low. Let us now assess the situation in this respect in the case of the Spanish banking sector.