good. nevertheless, central banks can play a productive role in safeguarding financial stability. it certainly makes sense to harness central banks ’ high level of expertise with regard to financial stability risks. however, the " weapon of choice " for combatting these risks is not monetary policy – it is macroprudential policy. in his first speech as a governor at the federal reserve board, ben bernanke demanded : " use the right tool for the job. " 8 to stretch the analogy with the african fauna further, this is something we could compare to the feeding habits of zebra and wildebeest. they graze alongside each other, of course, but they actually feed from different grass heights, with zebra preferring taller grass and wildebeest focusing on short grass. researchers have attributed this selection to anatomic differences in mouth dimensions. 9 in a similar vein, macroprudential instruments can be used in a far more targeted way than monetary policy. they cut the grass at a different level, so to speak. this is of particular use with respect to the euro area. macroprudential tools can be employed at the level of member countries to combat problematic developments in national financial systems – developments that cannot be counteracted by the single monetary policy. one of the instruments to address exuberance in the financial system are countercyclical capital buffers. moreover, as real estate markets have underscored their destabilising potential during the last crisis, many tools are geared explicitly towards this market. caps on the loan - to - value or debt - to - income ratios are two examples of instruments that allow for a tempering of the demand for mortgages. however, if we are to deploy these new policy instruments, we need to gain a better understanding of how they affect macroeconomic performance and interact with monetary policy. a forthcoming bundesbank discussion paper points out the danger of " financial dominance ". within a dsge model, vivien lewis and markus roth demonstrate that, if macroprudential policy is too lax, monetary policy may be forced to do the job by driving inflation above its price stability target and reducing the real burden of private debt. 10 thus a stringent macroprudential reaction to financial stability risks is also a means to protect monetary policy. to ascertain when we should adjust macroprudential tools, and by how much, we need to know how effective these tools are, and whether the transmission channel is subject to lags

only partially passed through to the balance sheet. this is an important factor mitigating the impact of the crisis. also, considering the sovereign bond holdings held at fair value, those banks whose portfolios have shorter terms to maturity are less affected than those with longer terms to maturity. in the case of spanish banks, 70 % of sovereign bonds held at fair value have a remaining term over one year, while just 7 % have terms to maturity over ten years. these positive effects predominate over the decline in the stock of performing loans that generate interest income, prompted by higher interest rates and worsening economic activity, which lessen total credit growth and quality. conclusions to recapitulate, the banking industry is facing the new shocks stemming from the invasion of ukraine, having posted a moderate lending performance in spain in 2021, recovered prepandemic profitability and maintained its solvency levels. the recovery in economic activity in 2021 helped underpin non - financial agents ’ financial position, although there are still industries and segments that are more vulnerable now than they were before the pandemic. yet despite this favourable performance latent credit risks persist, associated above all with the higher proportion of stage 2 loans, concentrated in the economic sectors most severely affected by the health crisis. financial intermediaries in spain have very low direct credit exposure to russia. however, the deterioration in the macroeconomic outlook and further increases in inflation will intensify the likelihood of the materialisation, and impact on the banking sector, of the latent risks. in this setting, the simulation exercises performed show that, around the projection scenarios, rising energy prices and tighter financing conditions will have an uneven impact on the financial situation of firms and households. this impact will be contained in aggregate terms, but will be more severe for groups that are more vulnerable on account of their indebtedness or energy dependence. moreover, the banking sector stress tests point to a certain degree of capital charge under more extreme scenarios and to aggregate resilience that remains adequate, albeit uneven across banks. lastly, the short and medium - term challenges must not allow us to overlook the need to address the structural challenges that the banking sector was already facing before the onset of the pandemic and russia ’ s invasion of ukraine. in particular, the need for capacity adjustment, as well as the growing competition from technology firms and the potential negative effects associated with climate risks.