it comes to climate change. to the extent that there is clear and rigorous empirical analysis pointing to different climate risk profiles across different asset classes, the committee will then consider whether additional regulatory measures are warranted to mitigate such risks. more generally, there are a lot of ongoing initiatives globally, and we are acutely aware of the potential fragmentation when it comes to different supervisory and regulatory initiatives, which in turn would undermine the global level - playing field. as such, it is crucial that there is broad agreement among the larger set of global public and private - sector bodies when it comes to issues such as consistent definitions, taxonomies and approaches. these are crucial prerequisites to any subsequent disclosure, supervisory or regulatory initiatives pursued by the committee. therefore, it is extremely important to maintain global coordination and seek global measures where relevant. stress testing as a silver bullet? given the cross - cutting nature of climate change and the wide range of risks that it poses to the banking system, i would be hesitant to rely on any single measure or tool as a “ silver bullet ”. instead, i think it is crucial that we remain open - minded and consider the full spectrum of tools available when it comes to mitigating climate risks for banks. indeed, this philosophy underpins the design and rationale of the basel iii framework, which is based on a “ multiple metrics ” approach. this approach is based on the fact that each regulatory measure has strengths and weakness and therefore the multiple metrics framework is considered more robust to arbitrage and erosion over time, as each measure offsets the shortcomings and adverse incentives of the others. and this applies equally when it comes to climate - related financial risks and stress testing. of course, we have to acknowledge that stress tests are a powerful and important measure in our toolkit, as they allow authorities to assess the resilience of banks to future adverse scenarios. and also because, given the time horizon of climate - related financial risks, we cannot rely on historical data to gauge the risks to banks. so stress tests can complement the backward - looking nature of our pillar 1 risk - weighted framework, which is calibrated based on empirical data, and explore different scenarios. 5 / 6 but, at the same time, we have to acknowledge that stress tests can handle “ traditional ” financial risks by drawing on the experience from previous financial crises. but, as we mentioned before, the cycle for climate risks is much longer, and there is a

of course, as with all cultural change, to be successfully implemented, it must begin at senior management level. in order to be able to develop and implement this new culture, it is essential for the governing bodies to be committed and actively involved in aspects such as the design and governance of the products sold by banks, as well as in training and changes to incentive mechanisms for sales staff. credit standards : ability to pay vs. value of collateral. apart from the strengthening of transparency and protection of customers, i would like to mention an aspect of the law which seems to me especially significant from a supervisory viewpoint. specifically, the law requires lenders to assess the solvency of potential borrowers, sureties and guarantors in depth before entering into loan agreements. this quires them to evaluate, among other matters, their employment situation, present and future income, assets, available savings, and any other fixed expenditure or commitment they may have already assumed. of course, as a supervisor i fully agree with all these requirements, which are absolutely necessary and obvious. however it is somewhat disheartening to have to see them specifically mentioned in legislation. the text of this law shows that on many occasions institutions relaxed their standards and basic principles excessively, in order to carry on lending. that does not say much for us supervisors either, since we did not react sufficiently to the weakness of credit standards. 7 / 15 the crisis has clearly shown that the fundamental consideration when granting a loan is not the value of the collateral, but the borrower ’ s ability to pay. there should be no need to mention that whenever a loan is granted it is necessary to consider the probability that the principal and agreed interest will be paid, not the supposed quality of the collateral. a property bubble, like the one seen in spain, can only occur if sufficient financing is available. hence the responsibility of the banking industry, and by extension the supervisor, to avoid another similar bubble in future. clearly, if the analysis carried out prior to granting a loan is based excessively on the value of the collateral supplied, there is no effective practical limit to credit growth, at least as long as the value of collateral also continues to rise. certainly, if the amount of financing granted is close to the value of the property or, worse still, based on expectations of future growth in the value of the dwelling, the consequences will be even more dire. in this respect, we can see in the chart how two ratios that are highly relevant