, our scenarios now generally incorporate other adverse developments, such as an exceptionally large decline in housing prices, the default of the largest counterparty, and a worsening of global economic conditions more severe than might normally be expected to accompany a deep recession in the united states. in order for our stress testing to remain focused on key vulnerabilities facing the banking system, our stress scenarios will evolve further over time as banking firms ’ risk characteristics and business models evolve, the relationship between scenario variables and banking firm performance shifts, and the economic and market environment in which banking firms operate changes. over the past six months, the federal reserve also has increased the transparency of our capital planning and stress testing work. we have published both a policy statement describing the scenario development process for future capital planning and stress testing exercises and a paper discussing our expectations for internal capital planning at large banking firms and the range of practices we have observed at these companies during the past three ccar exercises. the transparency of our stress testing processes complements our enhanced transparency around the results of the exercises and our assessments of firms ’ capital planning, all of which aim to give investors, analysts, and the public valuable information about firms ’ financial conditions and resiliency to stress. volcker rule in december, the u. s. banking agencies, the securities and exchange commission ( sec ), and the commodity futures trading commission finalized the volcker rule to implement section 619 of the dodd - frank act. as you know, the volcker rule prohibits banking entities from engaging in short - term proprietary trading of certain securities and derivatives for their own account. the volcker rule also imposes limits on banking entities ’ investments in, and relationships with, hedge funds and private equity funds. the finalization of this rule took a substantial amount of time and effort in part because of the intrinsic challenges in distinguishing between the proprietary trading that is outlawed by the dodd - frank act and the hedging and market making activities that are allowed by the act. the ultimate success of the final rule will depend on how well the implementing agencies supervise and enforce the rule. while the federal reserve ’ s supervisory role will be less than that of the office of the comptroller of the currency and the sec, we will continue to work with the other implementing agencies to develop an effective and consistent supervisory framework and to ensure that the volcker rule is implemented in a manner that upholds the aims of the statute, while not jeopardizing important activities such as market making

rulemaking. we plan to coordinate the nprs for basel i and basel ii so that bankers and others can evaluate each proposal, and compare the two proposals. thus, commenters should have full information when considering both proposals for changes to the capital framework for financial institutions in the united states. hmda data the topic of fair lending, seen through the prism of the new home mortgage disclosure act data on mortgage loan pricing, is easily worth a speech in itself. today, i will only be able to touch on the topic. however, you will be hearing more from the federal reserve about these data as we conduct further analysis. the data contain a wealth of information, but in many respects they raise as many questions as they answer. remember that the new interest rate information provides supervisors with a screening tool to identify banks where additional testing needs to be conducted to determine if fair lending compliance is effective. some of the differences in pricing may reflect credit risk, and the hmda data by itself does not include this information. as you have seen in recent headlines, the data show that african - american and hispanic borrowers obtain higher - priced mortgage loans much more frequently than do whites or asian - americans. for example, african - american borrowers obtained higher - priced conventional home purchase loans in 2004 more than three - and - one - half times as often as white borrowers ; hispanics, more than twice as often as whites. 1 such great disparities raise legal issues of compliance with fair lending laws as well as basic ethical, social, and economic questions. attempting to answer those questions would be well beyond the scope of my remarks today. i will simply emphasize that disparities of this kind challenge us to understand them better. for only by understanding the disparities more deeply can we hope to discern their root causes and decide on appropriate responses. an article by federal reserve staff in the summer edition of the federal reserve bulletin takes a step in the direction of deepening our understanding. it notes that a major reason that african - americans and hispanics obtain higher - priced loans more frequently than whites is that they more frequently obtain loans from mortgage lenders that concentrate their business on originating higher - priced loans. this partial explanation for the differences in the incidence of higher - priced borrowing, however, begs for its own explanation : why is there a racial and ethnic difference in the tendency of borrowers to obtain loans from lenders that concentrate on higher - priced lending? qualitative and quantitative research on such