Beverly Hirtle: Structural and cyclical macroprudential objectives in supervisory stress testing Remarks by Ms Beverly Hirtle, Executive Vice President and Director of Research of the Federal Reserve Bank of New York, at the conference "The Effects of Post-Crisis Banking Reforms", Federal Reserve Bank of New York, New York City, 22 June 2018. * * * Good morning. It is my pleasure to make the opening remarks at this conference on post-crisis regulatory reform in the banking industry. It’s exciting to see such a distinguished group of researchers and supervisors in the room, all focused on developing a deeper understanding of the effects of the many significant regulatory changes that were put in place in response to the global financial crisis. I hope that the day is filled with productive discussion and debate. And, before I continue, I want to note that my comments today reflect my own views and not necessarily the views of the Federal Reserve Bank of New York or the Federal Reserve System. We are approaching the ten-year anniversary of the worst financial crisis in generations. Many regulatory and supervisory reforms have been made since, including changes to regulatory capital requirements, the introduction of new liquidity requirements, the redesign of the supervisory program for systemically important banks by the Federal Reserve’s Large Institution Supervision Coordinating Committee (LISCC), the introduction of the Comprehensive Capital Analysis and Review (or CCAR) program, requirements about recovery and resolution planning, and myriad other regulations under the Wall Street Reform and Consumer Protection Act (DoddFrank Act).

Today I will use these elements to talk about the current supervisory stress testing regime and assess whether it continues to address macroprudential objectives. I should note that my focus today is on the broad structure of supervisory stress testing and not on any specific set of stress test results. As you know, the 2018 DFAST results were released yesterday and the corresponding CCAR results will be released next week. I am not going to discuss these results or draw any inferences from them. Comprehensiveness Let me start the discussion with the first of the elements: comprehensiveness. As noted, the set of banks participating in the SCAP accounted for a large portion of the assets and loans in the U.S. banking industry and spanned nearly all significant banking industry activities. In 2009, we argued that this comprehensiveness was essential in achieving the SCAP’s macroprudential goals as the collective stress test results provided a view into a large share of the industry. More important, through the subsequent capital raises, the SCAP helped ensure that this large segment was sufficiently well capitalized to provide a buffer to the broader economy against possible future bad outcomes. After the SCAP, the Dodd-Frank Act expanded the set of banking companies subject to supervisory stress testing to include all bank holding companies with assets exceeding $ billion—about another 15 to 20 firms, including the U.S. operations of many large, foreign-owned banks. In 2018, a total of 35 firms participated in the CCAR and DFAST stress tests.