their interconnections with the rest of the financial system remain. locally, financial market depth remains low from a historical perspective, which increases exposure to global developments, especially in the face of abrupt reversals in financial prices ( figure 13 ). in addition to the aforementioned set of risks, there are others that have increased in intensity in recent months. the most notable are the increased geopolitical tensions, both due to the evolution of armed conflicts and the emergence of measures that threaten the process of globalization. this set of events could have negative effects on financial stability. for example, because in the face of greater prospects for public spending on defense, an increase in uncertainty or risk aversion could deteriorate financial conditions. this would be especially complex for emerging economies, where capital outflows could be triggered. in addition, impacts could be observed through the real channel. this could occur if protectionist trade policies are implemented that increase trade restrictions or disruptions in the supply chain and the commodities market. scenarios like these would put pressure on inflation and interest rates at a global level, also with potential consequences for financial stability. stress tests regarding the impact that a severe stress scenario would have on the financial situation of households and businesses, the results of the tests are similar to those of the previous report. in the risk balance of companies, lower debt is combined with greater initial delinquency. in the stressed scenario, the main impact comes from the shock of higher long - term rates, eroding future repayment capacity. in the real estate sector, the weak activity that has been going on for several quarters could continue to weaken the repayment capacity of these firms. although a significant downward adjustment in asset values constitutes a risk factor, prudential regulation would help mitigate its effects on the financial system ( figure 14 ). for individuals, the balance of risks is slightly better than a few months ago, as short - term interest rates have been falling and consumer defaults have declined, offsetting the increase in mortgage arrears. the result of the stress test is similar to that in the previous ief, with the path of interest rates and indexation being the main determinants of future credit risk ( figure 15 ). in the banking system, as the basel iii implementation process has progressed, it has strengthened its capital bases. the tests show that the system still has adequate levels of liquidity, provisions and capital to remain solvent in the face of severe stress scenarios. all this

##ebtedness of households, companies and governments, is still present. the fact that the higher the level of debt the more costly the solutions and greater the side - effects, poses a problem. we have been seeing this clearly during recent quarters. you may recall that just a year ago the main problem faced by emerging economies was how to deal with inflationary pressures, given the narrowing of domestic capacity gaps and the rise in prices of commodities in international markets. this happened at the same time as the two - speed recovery process i just mentioned was accompanied by an interest rate differential that redirected capital flows towards emerging markets, exerting strong pressures to appreciate our currencies. our concern then was the pace at which we would lower impulse to our economies, taking care that it did not intensify pressures on the exchange rate and cause new imbalances. only six months later our major concern had changed dramatically. the intensification of financial tensions in the developed economies drastically changed our perception of the future of the global economy. financial markets drastically picked up this change of mood bis central bankers ’ speeches and very quickly we saw, among other developments, drops in stock prices, hikes in risk premiums, and reductions in the prices of commodities. the tough discussions held in the united states on fiscal issues, together with the weakness of its economic data towards mid - year, fueled these negative perceptions. overall, emerging economies dramatically changed their perceptions and communication as to the future of monetary policy. between august and october, probably on the peak moments of the last financial turbulences in the developed world, many central banks stopped the process of interest rate raises, and many also changed the direction of changes in their monetary policies to more expansive ones. in chile, after raising mpr by 200 basis points during the first half of 2011 and stating that there were still some increases to be made, in august we moved towards a neutral stance. in october, considering the envisaged consequences of the deterioration of the international scenario, we announced that we would increase monetary impulse if we foresaw that this situation could have a negative impact on our economy. thus, in january of this year we lowered the mpr by 25 basis points. now we have announced that new monetary policy actions will depend both on our assessment of the effects of the international scenario on the domestic economy as well as on the evolution of the domestic economy itself. allow me to present you our vision of what is going on in the world and how