and thus susceptible to particularly sharp declines in a serious recession. to the extent that firms learn over time that such assets will be treated that way, there is at least a mild disincentive to hold them. as i will discuss in a moment with respect to countercyclical capital requirements, we should not overstate this lean - against - the - wind effect, but perhaps not dismiss it out of hand either. for example, if the loss to the financial system from the failure of a systemically important firm would be five times that resulting from failure of the non - systemic firm, then the firm would have to hold additional capital sufficient to make the expected probability of failure one - fifth that of the non - systemic institution. among the useful efforts along these lines are a measure of conditional value - at - risk ( covar ) ( see tobias adrian and markus k. brunnermeier ( 2011 ), “ covar ( pdf ), ” federal reserve bank of new york staff reports 348 ( new york : federal reserve bank of new york, september ), and a measure of systemic risk based on each firm ’ s contribution to the expected capital shortfall of the entire financial system in a crisis ( see christian t. brownlees and robert f. engle ( 2011 ), “ volatility, correlation and tails for systemic risk measurement, ” new york university working paper ( new york : new york university, june ). the concept behind the latter measure is also described in viral v. acharya, christian brownlees, farhang farazmand, and matthew richardson ( 2011 ), “ measuring systemic risk, ” in regulating wall street : the dodd - frank act and the new architecture of global finance ( new york : wiley publishers ), pp. 87 – 119. updated systemic risk rankings are maintained by the authors here. a helpful review of the efforts to measure systemic risk is monica billio, mila getmansky, andrew w. lo, and loriana pelizzon ( 2010 ), “ measuring systemic risk in the finance and insurance sectors ( pdf ), ” mit sloan school working paper 4774 – 10 ( cambridge, ma : mit sloan school of management, march ). bis central bankers ’ speeches 3. time - varying measures will play a more limited role. some discussions of macroprudential policy appear to contemplate a somewhat regular adjustment – up and down – of both resiliency and lean -

point that many others have made as well - that a balanced recovery would be impossible without a sustained revival in capital expenditures. my earlier speech surveyed the prospects for various types of investment spending but emphasized the importance for the strength of the investment recovery of ceos'views on prospective returns to capital expenditure and the future of the economy - their animal spirits, if you will. with a little more than four additional months'worth of data, what can we say today about the recovery of investment spending? as i noted in april, the best prospects for an investment rebound in the corporate sector lie in the equipment and software sector, particularly in high - tech equipment. over the summer we have seen indications of at least a moderate pickup in this sector. notably, according to the preliminary gdp estimates, real investment in equipment and software rose at an annual rate of 8 percent in the second quarter. real expenditures for high - tech equipment advanced 34 percent ( at an annual rate ) in the second quarter, a significant step up from the first quarter, and real spending on software rose at a 9 percent rate. perhaps managers have finally decided that they can't put off that it upgrade any longer. even spending on communications equipment was strong in the second quarter. investment in non - high - tech equipment, including both transportation and general machinery, has also improved. in recent months, indicators such as orders data and indexes based on surveys of managers'plans for capital expenditures have strengthened, on balance, suggesting that investment in equipment and software is likely to continue to rise in the near term. by contrast, as i noted in my earlier speech and others have observed, investment in nonresidential structures is not a promising source of growth. the strength in this category in the second quarter was due importantly to an increase in spending in the drilling and mining sector, tied primarily to high natural gas prices. the outlook for buildings, particularly office and industrial buildings, remains weak, as high vacancy rates and low utilization rates persist. however, for better or worse, investment in nonresidential structures has become such a small part of aggregate spending on average that recovery in this sector is not a make - or - break factor for the overall economy. looking beyond the very near term, i see some grounds for optimism that the revival in business investment will persist, laying the foundation for continuing rapid expansion in 2004. first, the strong growth in demand already in train should provide incentives to corporate managers to expand productive capacity, particularly given the efforts