and nbfi2 exposures. 3 others have also pointed to the gaps in regulatory and supervisory frameworks and the long period of low interest rates and ample liquidity. while these latter factors are all true, this episode has shown that even today some banks still fail to comply with basic risk management and governance practices. but what are the fundamentals of risk management and oversight by banks? beyond the basel committee ’ s 2015 corporate governance principles for banks, 4 there is no single approach to good corporate governance. the clear objective is to achieve sound risk management and decision - making. banks ’ board of directors, senior management and risk management function should be able to ask the right questions in a timely manner and take credible decisions to strengthen operational and critical resilience. this seems to be the real challenge, even today. banks should be able to respond promptly to material developments such as rapid growth, an excessive concentration on funding sources, ineffective asset - liability management, misconduct incidents, changes in the economic environment ( such as policy normalisation or economic growth ), or their ability to consider stress - test scenarios. non - banking financial institutions. hernandez de cos, april 2023 https : / / www. bde. es / bde / es / secciones / prensa / intervpub / discursos _ del _ go / gobernador - - bis - innovation - hubeurosystem - centre - - - regtech - and - suptech - in - the - context - of - cryptocurrencies - and - decentralised - finance -. html. https : / / www. bis. org / bcbs / publ / d328. htm. based on our experience in the ssm, banks have improved their governance structure and design in recent years. however, challenges remain in implementing these changes and making them effective. the thematic review conducted in 2015 was the first horizontal exercise that led to tangible improvements in the design of banks ’ management bodies. however, efforts still need to be made to improve boards ’ oversight role and challenging capacity. progress has been made in some areas such as board composition ( collective knowledge and diversity ), self - reflection on board effectiveness and the quality of board documentation and minutes. however, some challenges remain, particularly with regard to boards ’ oversight and challenging capacity, insufficient internal suitability policies for the recruitment and assessment of board members, the inclusion of an appropriate risk perspective in discussions and

##th o f nearly 7 %. fo r more details o n these sub - indices, see pacce, m., a. del rio and i. sanchez - garcia ( 2022 ), “ the recent perfo rmance of underlying inflatio n in the euro area and in spain ”, analytical articles, economic bulletin 3 / 2022, banco de espana. this sub - index includes “ clo thing and fo otwear ”, “ ho using ” excluding energy and ho me maintenance expenditure, “ health ”, “ co mmunications ”, “ educatio n ” and “ miscellaneo us go ods and services ”. it includes rental o f ho useho lds ’ main residence. above all, of the interest rate differential ( hence the different monetary policy response ), the increase in global risk aversion and the fact that the energy shock entailed a deterioration in the terms of trade in the euro area ( not in the united states ). the pass - through of this depreciation may have been faster than in the past taking into account possible non - linear effects 9, since there is evidence that the pass - through is stronger when the exchange rate fluctuations are relatively large, limiting importers ’ capacity to absorb foreign exchange rate shocks. 10 however, in the second half of 2022 and so far in 2023 this depreciation has partially reversed. in this context, this could also be passed through to lower consumer prices. as in the case of energy prices, this raises two questions. first, how long depreciation will persist. second, whether its effects will be symmetric in both speed and amount. this is again an issue we need to monitor in the coming months. developments in labour markets and wage pressures the evolution of wages and mark - ups will be another key determinant of inflation looking ahead. in particular, if higher inflation is significantly transmitted to wage increases, this could lead to further increases in prices, in particular if firms attempt to preserve or even increase their profit margins. the eurosystem december forecast projected wage growth, as measured by compensation per employee, to increase from 4. 5 % in 2022 to 5. 2 % in 2023 before declining to 4. 5 % in 2024 and 3. 9 % in 2025 as inflation declines. the latest signals from negotiated wages would be in line with such projections. in particular, contracts signed during the fourth quarter of 202