’ funding costs and of a deterioration in credit risk quality. with regard to financing, the gradual reduction in, and increased cost of, eurosystem liquidity facilities and the developments seen in deposits ( with depositors seeking better remunerated financial instruments and having used up part of the savings buffers built up during the pandemic ) may accelerate the increase in banks ’ cost of funding. the continuation and / or heightening of the recent tensions in the global banking sector could also contribute to this increase. as for the future increase in credit risk, our estimates show that a market interest rate increase of 400 bp, somewhat larger than the gain of approximately 365 bp seen in the 3month euribor, could push up non - financial corporations ’ median gross debt burden ratio by between 2. 9 pp and 6. 8 pp9 and the share of corporate debt held by firms under high financial pressure10 by between 6. 5 pp and 8. 9 pp. in the case of households, it is estimated that a 400 bp rise in the 12 - month euribor ( slightly less than the 410 bp increase seen since the beginning of 2022 ) would raise the percentage of indebted households with a high net interest burden11 by 3. 5 pp. this increase would tend to be stronger for lower - income indebted households, which are also those most affected by the rise in inflation. in this regard, the reform in late 2022 of the code of good banking practice ( cgp ) focuses precisely on orderly debt restructuring for household segments with a high degree of socio - economic vulnerability. the banco de espana will assess its implementation as more data become available. how different banks and financial systems position themselves against these risks will determine how resilient they are. in this regard, amid such high uncertainty, including that surrounding the degree of monetary policy tightening, spanish banks must implement a prudent provisioning and capital policy. a policy that earmarks part of the short - term increase in earnings to bolster the sector ’ s resilience would thus put it in a better position to absorb any potential losses should the worst risk scenarios materialise. from a european standpoint, it should also be noted that a smoother - functioning euro area with improved governance would contribute hugely to making the european financial system less vulnerable. in particular, the creation of a fully mutualised european deposit insurance scheme would boost the confidence of citizens and the markets and contribute to increased risk - sharing in the

over - exposure to risks associated with excessive leverage and imprudent risk taking. fundamental to islamic finance is the profit and risk sharing which explicitly requires the appropriate due diligence and ensures that the profit is commensurate with the risks. the risk associated with the real investment activity is therefore explicitly integrated into the financial transaction. there is thus an explicit emphasis on the economic viability of the underlying assets and on good governance, ethics and transparency. it is these very elements of islamic finance that provides an in - built mechanism that enhances the prospects for its soundness and stability. as islamic finance evolves to meet the changing requirements of businesses and consumers, innovation is integral to the development of new islamic financial products and services. it is recognised, however, that unfettered financial innovation can become a major source of instability. in islamic finance, innovation must be tested against the objectives of the shariah, where the primary objective is the realisation of benefit to the people. this demands the internalisation of shariah principles in islamic financial transactions, both in form and substance. indeed, shariah - based innovation brings with it a shariah - compliant culture in the islamic financial institutions that serves to ensure that the product development process incorporates ethical value propositions. a central bank's perspective from a central bank's perspective, ensuring financial stability of the islamic financial system is the paramount objective. integral to the efforts in the development of islamic finance, is therefore, the strengthening of the regulatory and supervisory framework. the islamic financial services board ( ifsb ) which was established in 2002 has been instrumental in developing and issuing global prudential standards and guiding principles for the industry. this has included capital adequacy requirements, to governance and risk management standards. the ifsb has also contributed to the harmonisation in the development of islamic finance across different jurisdictions. while the basic legal, regulatory and supervisory framework that takes into account the distinctive features of islamic finance are already in place, efforts are now underway to put in place a comprehensive infrastructure to deal with the new challenges confronting the international financial system. looking beyond the current crisis, an integrated crisis management framework will be part of this infrastructure. it is recognised that a more facilitative and modernised legal framework is also required and that the boundaries of the regulatory framework for islamic finance would also have to be regularly adapted to keep pace with the evolution and transformation of the financial system. finally, the supervisory framework for islamic finance is also