this drives up inflation and, consequently, accelerates the monetary policy response. it also entails a worsening of financial conditions. 31 under the severe scenario, the price shocks are slightly more significant than under the adverse one, but the main difference is the inclusion of a more marked worsening of households ’ and firms ’ confidence, which causes further falls in the main domestic demand variables ( consumption and investment ). 32 the adverse scenarios for the foreign economies that are important to spanish banks are calibrated so that their severity is consistent with the impact of the shocks on the spanish economy. these scenarios thus enable a rigorous analysis of the banking sector ’ s resilience to the risks deriving from the current geopolitical setting. specifically, further increases in the sovereign risk premium and the spreads in bank lending to households and firms, and a decrease in the value of the assets that make up household wealth, with substantial falls in stock prices and house prices. inflation rises by up to an additional 3. 2 pp in average year - on - year terms in 2022 - 2023 under the adverse scenario and by up to an additional 3. 6 pp under the severe scenario. gdp growth slows, by an average of 2. 8 pp under the adverse scenario and 5. 4 pp under the severe scenario. the impact on average growth in house prices is - 5. 4 pp and - 8. 6 pp, respectively. as for interest rates, the increase in short - term rates is larger under the adverse scenario ( 2. 2 pp for 12 - month euribor ) and smaller under the severe scenario ( 0. 9 pp ) on account of weaker demand. there is a notable increase in long - term rates under both scenarios, with the average 10 - year sovereign bond yield climbing by 2. 6 pp and 3 pp, respectively. overall, the adverse scenario entails a negative impact of 1. 8 pp on the aggregate cet1 ratio of spanish banks ; this impact rises to 3 pp under the severe scenario. by components, the largest adverse impact would be on credit quality, leading to greater losses on loans to the private sector in business in spain and a sovereign bond value adjustment. there would also be a lower generation of funds. in turn, the lesser need for new provisioning ( owing to the greater use of existing provisions ), deleveraging at banks and more enforcement of guarantees to meet the expected credit losses associated with ico - backed loans, would mitigate the fall

eddie yue : structural reforms needed to improve asia ’ s economies statement by mr eddie yue, deputy chief executive of the hong kong monetary authority, and head of delegation, hong kong, for the 47th asian development bank annual meeting, astana, kazakhstan, 4 – 5 may 2014. * * * i would like to express my gratitude to the government of kazakhstan for hosting the 47th annual meeting of the asian development bank ( adb ) and the people of kazakhstan for their hospitality. i would also like to thank the management and staff of adb for the excellent organisation of the event. since the last adb annual meeting, we have seen a modest and uneven global recovery, with the advanced economies showing a pickup in economic activities while emerging market economies ( emes ) generally experiencing a moderation in growth. financial markets have turned more volatile in response to the changing pattern of global growth and expectations of a turning point in us monetary policy, and a number of emes have seen a sharp reversal of capital flows. regional economies have remained relatively resilient in the recent bouts of financial market volatility, thanks mainly to the stronger fundamentals of the region nowadays. since the asian financial crisis, many regional economies have implemented reforms to improve their macroeconomic management and fiscal positions, built up foreign reserves and strengthened their financial sectors. for some economies that were more affected by the recent financial market turmoil, they have also taken credible policies to address domestic imbalances and have been successful in restoring investors ’ confidence so far. nevertheless, we cannot afford to be complacent as what we had experienced in the past year was probably a prelude to, rather than the end of, a period of heightened market volatility. the sentiment of global financial markets has turned more sanguine recently amid expectation of prolonged low interest rates in the us. however, the pace of monetary normalisation in the us is very much uncertain and data dependent. with a large part of the cumulated capital inflows to asia since 2009 still in the region, it is possible that regional economies with domestic vulnerabilities built up during the period of ultra - loose global monetary conditions could experience sharp corrections when capital flows ultimately reverse. it is therefore imperative that regional economies should make use of the current breathing space to put their own house in order, take credible measures to reduce macroeconomic and financial imbalances, step up surveillance and ready contingency plans and liquidity backstops such as the use of foreign reserves and bilateral