the pandemic was almost 24 % in december 2021, compared with 17. 7 % in the moderately affected sectors and 15. 5 % in the less affected sectors. across all sectors, stage 2 loans account for the bulk of the deterioration. these credit exposures, which show some sign of impairment, may also be more vulnerable to the materialisation of risk in the present setting. accordingly, careful monitoring is needed, together with early and correct recognition of potential losses. meanwhile, the spanish banking sector ’ s profitability improved substantially in 2021. specifically, return on assets ( roa ) stood at 0. 67 % ( up on the - 0. 21 % of 2020 and on the 0. 51 % of 2019 ). the main driver of the improvement in ordinary profit was the reduction in impairment losses on financial assets. the average loan - to - value ( ltv ) and loan - to - price ( ltp ) ratios, which measure borrowers ’ indebtedness in new mortgage loans, remained stable in 2021. at the same time, there were no significant variations in the proportion of loans with a higher level of leverage ( those with an ltv or ltp ratio of more than 80 % ). as regards the loan - to - income ( lti ) ratio, which reflects the relationship between the mortgage principal and the borrowers ’ income when the loan is originated, most new lending was concentrated in loans with a low lti ratio ( below 3 ) and a high lti ratio ( above 4. 5 ). the average cost of liabilities at banks declined in the last two years, meaning a lower level at end - 2021 ( 0. 5 % ) than prior to the pandemic ( slightly above 1 % ). the cost of capital stood at 8. 1 % in december 2021, lower than the sector ’ s roe ( 10. 5 % ) even without factoring in extraordinary items ( 9 % ). moreover, the cet1 capital ratio held relatively steady in 2021, after increasing in 2020, so the health crisis has not lessened the banking sector ’ s overall capacity to absorb unexpected losses. the stress tests conducted by the banco de espana show that the banking sector maintains its correct aggregate resilience to the macro - financial risks identified in the present setting, albeit unevenly across banks. a large - scale materialisation of the risks would entail a significant capital charge at aggregate level, but not so substantial as to jeopardise the

of exchange rates into import prices, the increase in trade volumes arising from globalization has presumably boosted the relative importance of the exchange rate in the economy, thereby strengthening an unpredictable factor in the monetary policy transmission mechanism. despite the increased openness of the domestic economy to foreign shocks and greater uncertainty about the monetary policy transmission mechanism, economic volatility in the united states and other advanced economies has declined. that stability may be attributable, in part, to the increasing ability of global product and capital markets to buffer the domestic economy against internal shocks. because of globalization, net exports likely absorb a greater proportion of downshifts in domestic spending, foreign competition helps discipline domestic price increases, and – as a consequence of greater cross - border holdings of assets – gains and losses on domestic assets are realized in part by foreign investors. together with the implementation of better monetary policies in many countries, these particular aspects of globalization likely contributed to the " great moderation. " john addresses the question of whether greater economic integration has increased the gains to be had from policy cooperation and coordination. we have seen an example recently in which policy cooperation of a particular type seemed to pay dividends. in december, simultaneous and in some cases coordinated actions by a number of central banks to supply liquidity to banks apparently helped relieve stresses in interbank funding markets. coordination and cooperation were called for because banks today operate in many markets simultaneously, and pressures in one market can readily spill over to others, especially when the normal channels for arbitrage have been disrupted by financial turmoil. the federal reserve and other central banks are examining the implications of this episode for their methods of supplying liquidity and for responding to future interruptions in the flow of liquidity across markets. successful coordination in the provision of liquidity raises the question of whether appreciable gains might be had from coordination of monetary policies more generally. john is skeptical, and so am i. gains from formal policy coordination never seemed large, and it is not clear that globalization has increased them appreciably. policies agreed to under one set of circumstances may no longer be appropriate when circumstances change, as they inevitably will. monetary policy should be able to adjust quickly to such changes ; agreements that must be renegotiated can tie policymakers'hands. that does not mean that no circumstances exist in which coordinated monetary policy actions would be beneficial, but such circumstances are probably quite rare. ultimately, global stability depends on good performance in individual countries, and the record of recent