BIS central bankers’ speeches  1  regulatory capital and higher risk weights for many classes of assets. And the Federal Reserve mandated a new minimum supplementary leverage ratio that includes off-balance sheet exposures for the largest, most internationally active banking organizations and a leverage surcharge for large U.S. banking organizations. In support of these new regulations, capital assessment has become a focus of supervision since the financial crisis. Examiners monitor capital reserves and put banks through periodic stress tests that are evaluated on a cross-firm basis. This has been one of the great advancements of bank oversight following the crisis. These evaluations enable supervisors to assemble a composite assessment of the nation’s banking sector, which materially assists the Federal Reserve in its statutory mandate to promote financial stability.3 The Dodd-Frank Act mandates supervisory stress tests that assess whether large bank holding companies have a sufficient level of capital to absorb losses during adverse economic conditions.4 The Federal Reserve also conducts a capital planning exercise, called the Comprehensive Capital Analysis and Review or “CCAR.” This evaluation combines the quantitative results from the Dodd-Frank Act stress tests with a qualitative assessment of whether the largest bank holding companies have vigorous, “forward-looking capital planning processes that account for their unique risks.”5 The criteria for both sets of stress tests are dynamic and change in response to evolving risks. For example, past tests have assumed a sharp, sudden, and widespread drop in markets triggered by, say, a large Eurozone shock.

11 But the proposal presented by the committee still entailed a fairly unclear allocation of responsibility and the Riksbank assessed in its consultation response that this could lead to uncertainty over who should take action and thus weaken decisiveness too far. 12 We advocated that responsibility should be given to one decision-making body with a clear responsibility for macroprudential policy. A few weeks ago, the Government came to a decision. 13 Many details still remain to be decided, and it will take some time still before a complete framework is in place. But it is clear that Finansinspektionen (the Swedish Financial Supervisory Authority) will have the overall responsibility for macroprudential tools. The Riksbank will be part of a financial stability council that also includes the Government, Finansinspektionen and the National Debt Office. The council is to identify risks and discuss measures, but it should function as a discussion forum and not give explicit recommendations. The most important thing is that the uncertainty surrounding the allocation of responsibility has now been resolved in that it has been made clear and that responsibility will rest with one authority. I do not believe that the institutional set-up is otherwise of absolutely critical importance – within reasonable boundaries. Various solutions may very well prove to function equally well in practice and provide equally good economic development. Ultimately, it remains to be seen how things work out – “the proof of the pudding is in the eating”.