Similarly, banks should address the technology risk stemming from the impact of the adoption of new technologies on, for example, the probability of suffering cyberattacks, with extremely high potential effects on operational risk and banks’ own reputation. Lastly, climate change and the transition towards a more sustainable economy pose another key challenge. Although this affects all economic agents, it is particularly important in the financial sector. Banks face two types of risks in this area: “physical” risks linked to the direct effect of climate change on their asset values, and “transition” risks linked to the process of technological and regulatory transition to a more sustainable economy. In coming years, identifying, quantifying and mitigating these risks will require considerable effort, although the notable development of green sustainable financial markets in Spain in recent years should be highlighted. 2. Low interest rates and banks’ risk appetite In a low interest rate setting, there are greater incentives for economic agents to take on greater risk. The work of the macro- and microprudential authorities consists in ensuring that this greater risk-taking is not excessive and does not ultimately generate problems for financial stability. The authorities should use the various prudential instruments at their disposal to prevent this from occurring. The longer interest rates remain low, the more likely it is that risk-taking may become excessive. Clearly, deposit institutions are not immune to this, especially when profitability is low. Let us now assess the situation in this respect in the case of the Spanish banking sector.
As is well known, this guardianship and scrutiny constitutes the core of the Central Bank’s legally mandated role, and the fact that the Bank should be assigned the task of containing inflation is not absurd, nor is it a function of obsession or blind fundamentalist belief that a particular aspect of economic policy implementation should take absolute priority over all others. Both in Iceland and in most other countries, there is abundant experience to support the conviction that inflation is extremely harmful if it becomes immoderately high. It becomes a serious problem if deviations persist, and it will cause important damage if it continues to grow and the Central Bank cannot contain it through conventional measures within a reasonable period of time. It is possible to advance theoretical support for the idea that the Central Bank alone could hold inflation down, but in order to do so the Bank would have to implement its measures with such force and rigidity that its actions might have an extremely negative effect on many other aspects of people’s lives. It is therefore vital that those who are most influential in determining Iceland’s financial and economic development pull together as one in order to fight rising inflation. Short-term interests and viewpoints must yield in favour of the greater goal.