fuelled, among other developments, by a rise in major inflationary pressures in most economies. in my view, there are three basic factors behind this deterioration of the global economic situation. the first is the adverse behaviour of the us economy, weighted down by the continuing decline in its real estate sector, which is depressing household and investor confidence. until relatively recently, the emerging economies have been considerably more dynamic, partly offsetting the greater slackness in the more industrialised countries such as the united states. however, doubts over the real ability of these economies to continue posting robust growth rates amid the virtual stagnation of the more advanced countries are ever greater. the increase in oil and commodities prices is the second of the basic factors behind recent developments in activity and inflation at the global level, despite the relative easing since the summer. the effects of these price rises have been fully felt in the more advanced economies, while in the emerging economies the pass - through of higher energy costs is proving slower and is still far from complete. but it is the third of these factors that will most likely influence developments in the world economy in the coming quarters. i refer here to the severe worsening of the financial crisis in united states and in much of europe, and to the turmoil on international financial markets. somewhat more than a year back now, when the us subprime mortgage crisis broke, there was great uncertainty over the scope and duration of the episode then beginning. today, there is unfortunately no doubt that we are facing a global financial crisis of enormous proportions. although at first the difficulties appeared to be confined to just a few investment funds and relatively minor us mortgage institutions, the overall number of banks affected has since widened considerably. we have witnessed a process, with no practical solution in sight, involving nationalisations, bankruptcies, bank interventions, the creation of new investor guarantee schemes and considerable curbs on market practices, such as those affecting the short - selling of equities. the list of institutions affected includes most notably : the major investment banks, whose business model has succumbed to the turmoil ; the us government - sponsored mortgage agencies ; one of the biggest worldwide insurers ; and major us credit institutions. in europe, uk, danish and icelandic banks have been involved, as have more recently those from euro area countries such as belgium, the netherlands, luxembourg, france and germany. moreover, several european governments have announced their readiness to guarantee their banks ’ deposits. the foregoing developments pale into insign

banks would also face impairment of their corporate bond holdings under these scenarios, further reducing their profitability and solvency. as already mentioned, the impact would be uneven across economic sectors and geographical areas, and therefore the effects on banks across different countries would also be uneven. a very important point here is that banks ’ potential response to the materialisation of risks is not currently modelled in these stress tests, since the aim is to show what would happen precisely in the absence of any such response. in reality, however, banks can be expected to respond to the increase in the probabilities of default associated with the materialisation of physical risks in the event of inaction, which would exacerbate the negative implications for activity in these areas. the possibility of response makes the climate stress test methodology even more complicated, but it is a key element which will have to be incorporated in future. in addition, the ecb is currently conducting bottom - up stress tests in which banks will assess their exposure to climate risks. the exercise began with a questionnaire for banks, the aggregate results of which are due to be published in the summer. at the banco de espana we have also carried out top - down stress tests to assess the resilience of the spanish banking sector to climate - related transition risks, 17 and we are currently carrying out various empirical analyses to approximate the potential impact of the physical risks. in the first case, we simulated the impact of different transition policies over a three - year horizon : 1 ) a rise in the price of co2 emissions to €100 per tonne ; 2 ) extension of the obligations to acquire emission allowances for the most polluting sectors to all other productive sectors ; 3 ) a combination of the previous measures, which would be compatible with the aim of achieving net zero emissions in 2050 ; and 4 ) a combination of these same measures with an extension of the emission trading system to households. this exercise comprises two instruments that operate separately but recursively. the first is a theoretical macro sectoral model, calibrated for the spanish economy, which can be used to simulate the reallocation of resources across sectors resulting from the implementation of specific measures to combat climate change or technological innovations in this area. the second is an empirical model of the solvency dynamics of spanish banks stemming from the results of the macro sector model, based on the tool for conducting stress tests ( the so - called forward - looking exercise on spanish banks ( flesb ) ). given