6 The 9-quarter, rather than two year, horizon provides a two year forward horizon after the one-quarter gap  between the “as of” date of the stress test and when robust data on banks’ balance sheets, off-balance sheet exposures, and income are available. 7 7/8  BIS central bankers' speeches  7 European Banking Authority. “2018 EU-Wide Stress Test:  Methodological Note.” November 17, 2017. www.eba.europa.eu/documents/10180/2106643/2018+EU-wide+stress+test+-+Methodological+Note.pdf  8 See,  for instance, International Monetary Fund. Global Financial Stability Report. April 2009. www.imf.org/en/News/Articles/2015/09/28/04/53/sores042109c  9 Board of Governors of the Federal Reserve System. 2009. “Supervisory Capital Assessment Program: Overview  of Results.” May 7, 2009. www.federalreserve.gov/newsevents/files/bcreg20090507a1.pdf 10 The exception to this approach is for the global market shock on trading and counterparty positions, which is  assumed to occur instantaneously in a single quarter. 11 Sales, purchases and acquisitions that have been contractually agreed by but not consummated by the start of  the stress test are incorporated into the projections, however. 12 Board of Governors of the Federal Reserve System. “Dodd-Frank Act Stress Test 2018: Supervisory Stress Test  Methodology and Results.” results-20180621.pdf. June 2018. www.federalreserve.gov/publications/files/2018-dfast-methodology-  13 Daniel K. Tarullo. “Stress Testing after Five Years.” Remarks at the Federal Reserve’s Third Annual Stress  Testing Symposium. June 24, 2014. www.federalreserve.gov/newsevents/speech/tarullo20140625a.htm. 14 In the initial years of CCAR and DFAST stress testing, balance sheet projections made by the banks were used  in the supervisory estimates. 15 Beverly Hirtle, “Structural and Cyclical Macroprudential Objectives in Supervisory Stress Testing.” Federal  Reserve Bank of New York.

Bank-specific elements – which, as noted above, are critical to the microprudential policy objectives of the CCAR and DFAST programs – are introduced by using detailed data provided by each participating institution. Thus, results for individual banks vary based on the characteristics of their balance sheet and business focus, but not due to differences in the way particular net income or capital elements are modeled. Other choices are possible, of course, principally the choice to make greater use of bankgenerated stress test results as a way of capturing institution-specific factors, as is done in supervisory stress testing programs in some other jurisdictions. The European stress tests, for instance, are based on estimates made by the participating banks, subject to a variety of constraints on modeling assumptions and detailed review by supervisors.16 What I hope you take away from this review of the what and the how of stress testing is that the SCAP, CCAR and DFAST programs have involved a series of inter-connected design choices, most of which were intended to address the objectives of the stress test exercises, but none of which were inevitable or pre-ordained. Collectively, these design choices have implications for what the stress tests capture, as well as what they miss. I want to share a few thoughts about 4/8  BIS central bankers' speeches  the latter before turning to some suggestions for how additional research could help.