6 7  The Comprehensive Capital Analysis and Review or CCAR. Dent and Westwood (2016) includes a comparison of international concurrent stress-testing practices. 6  All speeches are available online at www.bankofengland.co.uk/speeches  6  Balance Sheet Impact So what has been the impact of these regulatory reform measures on banks’ overall resilience? One simple set of resilience metrics focusses on bank balance sheet measures of solvency and liquidity. Comparisons of international banks’ balance sheets are made difficult by changes over time in both the definitions of variables and the sample of banks. We consider a panel of international banks, designated as either global systemically-important (G-SIB) by the FSB in 2016, or domestic systemically-important (D-SIB). This gives a panel of 30 G-SIBs and about 160 D-SIBs.8 For each bank, we consider two solvency-based metrics (leverage and risk-weighted capital) and two liquidity-based metrics (a simple liquid asset ratio and the ratio of loans to deposits). These measures do not map precisely to Basel definitions.9 Chart 4 looks at a measure of banks’ Tier 1 risk-weighted capital ratios. For both G-SIBs and D-SIBs in our sample, these have risen significantly over the past decade, almost doubling from around 7-8% to around 13-14%. A very similar picture emerges for leverage ratios (Chart 5). These have also roughly doubled over the past decade, from around 3% to around 6%. On these metrics, there has been a material strengthening in solvency-based standards among systemically-important banks over the past decade.

The direction of travel necessary to enrich these tests, and to make them truly macroprudential, is to incorporate feedback effects that can amplify the actions of individual institutions at the system-wide level (Demekas (2015), Brazier (2015), Tarullo (2016)) – feedbacks, for instance, that result from fire-selling assets, hoarding liquidity and counterparty risk.27 A natural consequence is that we might need to extend the field of vision for such simulations to include nonbank parts of the financial system. Non-bank sources of systemic risk proved to be potent during the crisis, in particular among shadow banks. As regulation has squeezed the banking system, there has been further migration of financial activity into the shadows, particularly within Europe. What was once credit and funding risk on the balance sheets of banking firms is metamorphosing into market and liquidity risk on the balance sheets of funds and investment vehicles of various types (Stein (2013)). Understanding these risks calls for new and enhanced surveillance tools. Systematic, market-wide stress simulations might be needed to capture new market and liquidity risks and their propagation across different financial institutions and markets (Brazier (2017b)). The same considerations apply to key pieces of the financial infrastructure, in particular central counterparties (Cœuré (2017), Duffie (2017)). As a potentially new “too big to fail” entity, they too need to be stress-tested and their resolution plans agreed and implemented. This is a whole new risk-management agenda, where work has only just begun in earnest.