But there is a second set of design choices about how the stress scenario impacts will be modeled. To begin, capital ratios are measured separately for individual institutions, with no attempt to capture dynamic 3/8  BIS central bankers' speeches  interactions, spillovers or specific cross-firm exposures. Similarly, outcomes for the banking sector do not interact dynamically with the macroeconomic scenarios, which are inputs to the calculations. As a result, the calculations are “stand alone” in the sense that the outcomes for any individual institution are independent of those for others in the set of stress-tested firms. Results for the banking system are therefore simply the sum of results for individual institutions, rather than capturing interactions among them. The stand-alone approach reflects the microprudential objectives of the various U.S. supervisory stress test programs, along with practical considerations. While the SCAP and CCAR/DFAST stress tests programs have strong macroprudential elements15 , in each case the results have also been used to make firm-specific supervisory judgments about capital adequacy. This individual firm application pushes towards measurement approaches that capture more detailed, firm-specific characteristics. At the same time, fully dynamic models that capture interactions and exposures among firms or that build in feedback from banking sector outcomes to the macroeconomic scenario can be informationally demanding, computationally intensive and, at the stage of model development prevailing during the SCAP and early phases of the CCAR/DFAST regime, generally would have involved higher level, “industry average” assumptions about the performance of banks under the hypothetical stressed conditions.

Growth in public demand, stronger confidence in financial markets and low key rates are fuelling investment abroad. Even though the global economic situation now seems to have stabilised, there is still a risk of continued low growth for a fairly long period ahead. The severe downturn and fall in commodity prices has led to very low or negative consumer price inflation in many countries. Inflation is still moving down and is now negative in for instance the US, the euro area, Sweden, Japan and China. Core inflation is more stable, but has also shown a slight decline recently. The current low level of activity and high unemployment will also act as a brake on inflation in the period ahead. One characteristic of the crisis was the substantial increase in money market rates. Confidence between banks evaporated. Banks reacted by raising interest rates on loans to businesses and households. They started to turn off the lending tap. Measures implemented by central banks and governments have had a stabilising effect. The most important markets have also gradually become less disorderly, with less distrust among participants. The risk that issuers of credit will go bankrupt has diminished. Activity in money and bond markets has picked up and fluctuations are less pronounced. The situation in the interbank market has improved. The spread between money market rates and expected key rates, which is an indicator of risk premiums in the money market, has decreased. Money market premiums in Norway have also fallen. Equity markets have risen since early 2009.