assets in 2017, and they have reduced their reliance on shortterm wholesale funding from 37 percent of liabilities in 2011 to 25 percent of liabilities in 2017. 1 this, combined with critical reforms to money market funds and other vital short - term funding markets, have reduced the vulnerabilities in the financial system associated with liquidity mismatch and maturity transformation. in terms of capital, the quality of capital has improved with a particular focus on common equity, the most loss - absorbing form of capital. the quantity of capital also has increased through higher minimum requirements and new capital conservation buffers that require banking firms to keep their capital levels well above the minimums in order to maintain full flexibility to allocate profits to capital distributions and employee bonus payments. these buffers increase the ability of banking organizations to absorb losses and continue to lend to households and businesses, including during times of stress. indeed, the common equity capital to risk - weighted assets ratio of the bank holding companies participating in the comprehensive capital analysis and review has more than doubled from 5. 5 percent in the first quarter of 2009 to 12 percent in the fourth quarter of 2017. 2 we now regularly conduct comprehensive stress tests of the largest banking firms to help ensure that their capital distribution plans are consistent with their ability to lend and withstand severe macroeconomic and financial stress like that observed during the financial crisis. one key benefit of our stress testing program is that it promotes a dynamic forward - looking assessment of a bank ’ s capital adequacy in the face of severe stress. it is critical to maintain a dynamic capital regime that anticipates rapidly changing risks and business conditions. without such a dynamic focus, there is a risk that regulators and banking institutions end up spending too much time looking in the rear - view mirror and not enough time looking ahead for emerging risks. the stress testing capital regime applied to fannie and freddie before the crisis offers a sobering reminder of the dangers of failing to update stress tests in the face of changing market practices and emerging risks. the federal reserve has also imposed risk - based and leverage capital surcharges on the most systemic banking firms to ensure they internalize the costs their failure would have on the financial system and to provide an incentive to reduce their systemic footprint. we have recently released a proposal for comment to introduce a “ stress capital buffer ” or scb that would integrate the forward - looking stress test results into each institution ’ s ongoing capital requirements. some observers contend that current capital requirements

2 per cent of their outstanding bad debt ). in the early months of this year, the sales continued to be for small amounts. for the most part the transactions involved the major groups and foreign banks operating in italy. the smallness of the transactions to date can be ascribed to information asymmetry between buyers and sellers relating to poor data management at many banks and the objective difficulty of assessing the conditions of many indebted small businesses. public intervention, obviously in compliance with the regulations bis central bankers ’ speeches on state aid, could facilitate the development of this market, serving as a catalyst for private sector initiatives. while the discussion continues on this matter between the italian government, assisted by the bank of italy, and the european commission, further studies are being conducted to ascertain the actual interest of both potential investors and banks in a company to purchase and manage impaired assets, operating at market conditions. public participation in this asset management company would be marginal or nil ; there could be a state guarantee for the senior liabilities it issues to finance its asset purchases. over the next few weeks the feasibility of the project will be definitively determined. regardless of the outcome of the verification, banks burdened by large non - performing exposures will still have to identify, in accord with the supervisory authorities, the best procedure for efficiently managing those assets in order to gradually work off the overhang. 3. 2 governance, cooperative ( popolari ) banks and mutual banks change to the banking system has been given significant impetus by the reform of italy ’ s main cooperative ( popolari ) banks. the first steps provided for by the law for their conversion into joint stock companies have been taken : the presentation of the plans laying out the steps required and the timeframe within which the operations will be completed, which in many cases could be by the middle of next year. in recent days the project for the conversion of one large cooperative group – directly subject to the single supervisory mechanism – was approved by the shareholders ’ meeting. as i have often had occasion to observe, a change in the legal form provides a golden opportunity for strengthening corporate governance to permit more rapid access to capital markets and facilitate mergers that could help to increase profitability. it is not for the authorities to suggest or impose any merger plans, which must be identified and decided by the corporate bodies themselves. merger projects developed by the market will be carefully appraised in terms of their current and future financial soundness and the effects on the banks ’