This occurs through a wide range of institutions including bank holding companies, banks, and other firms supervised by the Federal Reserve System.1 In that context, a healthy bank maintains a strong balance sheet, measured by conventional metrics like capital, liquidity and asset quality; has a durable business model that generates a sustainable stream of earnings commensurate with a properly-defined risk profile; and has the appropriate controls in place that include, among other things, a robust risk management framework, a strong audit function, and effective oversight by the board of directors. All of these factors make a financial institution stronger and lower the chance that a shock such as an unexpected deterioration of credit quality or operational loss would drive the firm into insolvency, result in a loss of confidence by the firm’s creditors, counterparties, investors or customers, or force the firm to curtail its core activities. That is, a healthy firm is more resilient. This is true for financial institutions of all sizes and represents a baseline supervisory goal. I should emphasize that resiliency is not the ultimate aim, but rather a means to broader policy objectives. A resilient firm, for example, is more likely to provide a sustainable flow of financial services—broadly defined to include credit intermediation, payments, and risk transfer—through the cycle and across a range of possible macroeconomic outcomes; a resilient firm is less likely to harm the economy or consumers through excessive risk-taking; and a resilient firm is less likely to put taxpayer funds at risk.

For example, equity prices reflect, in part, investors’ expectations of future profits and their assessment of a bank’s management and business model, while bond yields and credit default swap spreads convey useful information about investors’ perceptions of default probabilities. Supervisors regularly evaluate market data in our assessment of financial institutions and these indicators generally show that investors’ confidence in the health of U.S. institutions has increased, although there has been some debate on the interpretation.8  Resiliency At the aggregate level, the largest U.S. banks have substantially improved both the quantity and quality of capital and liquidity, supporting the belief that the system is substantially more resilient 3/7  BIS central bankers' speeches  relative to the pre-crisis period. As shown in (Figure 1), the ratio of tangible common equity to risk-weighted assets has more than doubled from the crisis lows in 2009. Similarly, the ratio of net liquid assets to total assets has increased substantially over the same period.9 One can also look beyond the aggregates to see how capital and liquidity are distributed across large banks. (Figure 2) plots the aggregate ratio of tangible common equity to risk-weighted assets for a sample of large bank holding companies, and the 15th and 85th percentile bands. The entire distribution has shifted upward with the 15th percentile in 2016 comparable to the 85th percentile in the pre-crisis period. Not only has resilience increased in the aggregate, it has increased for most large institutions.