Two of these relate to the risks to price stability. One of these stipulates that our own projection for inflation 18–24 months ahead should be at least as likely to fall below 2.5% as to be above it. The other asks whether there is any evidence that measures of the inflation expectations of households, businesses and market participants have become insufficiently well-anchored to the target. At this stage, we do not see anything to worry about on this score. The third override condition, delegated to the Bank’s Financial Policy Committee, relates to whether the monetary policy stance is resulting in the build-up of dangerous financial stability risks. If the FPC cannot contain these risks using the range of recommendations and powers at its disposal, then it will alert the MPC, who will then decide whether an increase in Bank Rate is called for. Increasingly noisy commentary that a new housing bubble is brewing – and concerns that the second stage of the Help to Buy scheme will add fuel to the fire – may mean that this condition becomes material. I do not have time left today to do justice to this issue. But it is important to remember that mortgage approvals for house purchase are still running at a little over half their pre-crisis average and, outside London, house price inflation is still quite modest. So we appear to be still some way off seeing an unsustainable house-price boom on the back of excessive credit growth.
Indeed, for European banks affected by big operational events, this deterioration has stood at over 1.25 pp of CET1 in the past five years, with a rise to 2.1 pp in 2018. In Spain’s case, the potential materialisation of costs associated with legal risks continues to contribute to deposit institutions’ operational risk. The processes linked to past litigation such as that of the floor clauses have had an estimated cost for the sector  7/10  of over € billion to June 2019. Moreover, there are other significant legal processes still pending resolution. In any event, legal risk and certain other factors relating to banks’ conduct have had a considerable impact on the reputation of the banking sector, and not only in Spain. It is worth recalling here that reputation and customer confidence are fundamental to the banking business. Therefore, institutions should strive to reverse this tendency by providing their customers with financial products and services suited to their needs and capabilities, and they should likewise supply the relevant information clearly and transparently. Lastly, in relation to the systematic assessment of the balance of risks to financial stability that we regularly make at the Banco de España, we are including other elements, whose materialisation could occur over a longer horizon. I refer here to the potential changes technological innovation may entail for the market structure of the financial sector, and those arising from climate change. The importance banks give to these changes will have to increase accordingly.