Speech by Federal Reserve Chairman Bernanke on fostering financial stability

by Sabrina I. Pacifici on April 9, 2012

Chairman Ben S. Bernanke, April 9, 2012: “…An important example of our strengthened, cross-firm supervisory approach is the recently completed second annual Comprehensive Capital Analysis and Review (CCAR). In the CCAR, the Federal Reserve assessed the internal capital planning processes of the 19 largest bank holding companies and evaluated their capital adequacy under a very severe hypothetical stress scenario that included a peak unemployment rate of 13 percent, a 50 percent drop in equity prices, and a further 21 percent decline in housing prices. From a traditional safety-and-soundness perspective, we looked at whether each firm would have sufficient capital to remain financially stable, taking into account its capital distribution proposal, under the stress scenario. The simultaneous review, by common methods, of the nation’s largest banking firms also helped us better evaluate the resilience of the system as a whole, including the capacity of the banking system to continue to make credit available to households and businesses if the economy were to perform very poorly. Because stress tests will be an enduring part of the supervisory toolkit, we are evaluating the recent exercise particularly closely to identify both the elements that worked well and the areas in which execution and communication can be improved…”

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