The stress test in the face of an adverse macroeconomic scenario also showed satisfactory results for the Spanish banking sector. On average, the adverse scenario would have involved a reduction of 144 pp in Spanish banks’ CET1 ratio, without the minimum established capital ratio having failed to be met in any case. In the case of European banks, this average impact would have amounted to 300 bp. These results confirm that the financial reform undertaken in Spain has managed to satisfactorily correct the shortcomings in our banking system, thus placing it in a favourable starting position as the SSM has commenced operating. The latest profitability figures confirm the ongoing normalisation of the sector. Following the losses posted in 2012, against the background of the strong increase in provisions for asset impairment, deposit institutions, which had restored positive results in 2013, recorded profits after tax of almost € billion in 2014. Profitability in terms of equity, ROE, stood at 6.6% at December 2014, having increased by almost 1.5 pp on the previous year (5.2%). That said, profits in the industry, which are still modest in historical terms, are largely based on lower provisioning as a result of the cyclical improvement in the economy and also on the gains and losses on financial assets and liabilities.
These are all ways to use inflation targeting in a world of larger shocks. The key point is that they have required careful adaptation of the approach to monetary policy – evidence that the world doesn’t and should not stand still. In conclusion, I have pointed to four important areas where monetary policymaking is having to adapt. Our decision-making has become more multi-dimensional, with decisions on policy setting and the set of tools that should be available. We should always keep these decisions separate in terms of signalling. Second, the challenge currently is to raise the rate of inflation to target in the midst of a huge shock. This is just as important and underlines the symmetrical nature of our framework. Third, responding to a shock of this scale has led to debate around what it means to be an independent policymaker. This debate is misplaced – the focus must be and always is on the inflation target, the outcome. Last, central banks’ approach to inflation targeting has had to be adapted in the face of the much larger shocks we have been experiencing: But, that is in the nature of effective policymaking. Thank you. I am grateful to Andy Haldane, Andrew Hauser, Michael Saunders, Jan Vlieghe, Silvana Tenreyro, Ben Broadbent, Richard Harrison, Karen Jude, Nick McLaren and Laura Wallis for their assistance in helping me prepare these remarks. 3/3  BIS central bankers' speeches