The tests also evaluate market interconnectedness, including the risk of major counterparty default. To increase public transparency, the Federal Reserve now publishes the overall results of its stress tests. This helps rebuild confidence in the strength of the financial system. The most recent round of stress tests concluded in the first quarter of this year. In my view, the results were encouraging, although not uniformly satisfying. In general, “firms participating in CCAR have more than doubled their Tier 1 common capital since 2009, an increase of $ billion of additional, high-quality capital in the U.S. financial system.”6 This impressive statistic notwithstanding, the Federal Reserve objected to capital plans from five of the 30 participating firms. Four of those five firms submitted plans that raised firm-specific, qualitative concerns. The remaining firm failed to meet a minimum quantitative requirement.7 The consequences of failing to pass a stress test can be severe. If its capital plan has been rejected, the Federal Reserve may, among other things, restrict a bank holding company from paying or increasing dividends on its common stock or increasing any repurchase of its common stock, or both.8 For example, as a result of this year’s CCAR, Citigroup was not permitted to begin a new common stock repurchase program or to increase its quarterly common stock dividend.9 As a companion to improved capital, the Federal Reserve also assesses liquidity – that is, how quickly a bank can convert its assets into cash.

Prior to the crisis, liquidity practices did not generally anticipate the possibility of severe drops in the prices of saleable assets. 3  See, e.g., 12 U.S.C. § 5365(a)(1). 4  See 12 U.S.C. § 5365(i). 5  Board of Governors of the Federal Reserve System, Press Release, October 23, 2014. 6  Daniel Tarullo, “Stress Testing after Five Years,” Remarks at the Federal Reserve Third Annual Stress Test Modeling Symposium, Boston, Massachusetts, June 25, 2014. 7  See Board of Governors of the Federal Reserve System, Comprehensive Capital Analysis and Review 2014: Assessment Framework and Results, March 2014, at 7–8. 8  See 12 C.F.R. §§ 225.8(c)(2) and (e)(2)(iv). 9  See Citigroup, Inc., “Citi Statement on 2014 CCAR Results,” March 26, 2014. 2  BIS central bankers’ speeches  Following the crisis, the Federal Reserve imposed new liquidity regulations, including the Basel III Liquidity Coverage Ratio. The objective of these new regulations is to require large firms to hold levels of liquid assets sufficient to protect against constraints on their funding during times of financial turmoil. We have also implemented liquidity stress test assessments for systemically important financial institutions. These assessments provide important insight into the adequacy of liquidity positions and bank preparedness for upcoming regulatory standards. Beyond capital and liquidity, the Federal Reserve has increased its focus on risk management practices at the largest and most systemically important financial institutions. We learned from the crisis that risk management in the financial services industry had not always kept pace with changing market practices.