open market committee ( fomc ) will meet the challenge. finally, i ’ d like to note that even with some early signs of economic improvement, a number of risks remain. as i have highlighted today, the housing market remains fragile and is not likely to contribute to economic recovery in its traditional way – and this is part of why i do not expect growth to exceed 4 percent in 2011. furthermore, in many areas of the country the impaired balance sheets of borrowers, high foreclosures, and high vacancy rates imply a long time before local housing markets normalize. state and local governments remain significantly challenged by the aftershocks of the financial crisis and recession. and many state and local governments continue to have both short - run and long - run fiscal challenges. finally, the large fiscal deficits of many governments accrued during the recession will need to be addressed. and as figure 17 shows, financial markets are concerned that many countries will be forced to make very painful fiscal choices – in economies with already significant challenges – or risk default. yet while risks like these remain, the economy is in a much better place than it was one or two years ago. fiscal and monetary policy responded aggressively, and in my view appropriately, to avoid what would have been a much more severe outcome, absent action. there will be a time when these aggressive actions need to be reversed, but first we need to get the economy on a much more solid footing. even with a relatively robust recovery, it will take several years before we attain full employment and an inflation rate close to a long - run expectation of 2 percent. taken together there has been clear room for – and indeed an imperative for – policy actions like those the federal reserve has been pursuing. 5 going for additional perspective, see vice chair janet yellen's remarks of january 10, where she discusses the rationale, design, and effectiveness of the federal reserve's asset - purchase program ; and concerns about inflation or adverse imbalances resulting. the text is available on the board of governors website at http : / / www. federalreserve. gov / newsevents / speech / yellen20110108a. htm. bis central bankers ’ speeches forward our focus must be on policies that return the economy to a place that meets both elements of the fed ’ s mandate. thank you. bis central bankers ’ speeches bis central bankers ’ speeches bis central bankers ’ speeches bis central bankers ’ speeches bis central bankers

assessment. it also highlighted where institutions needed to do additional work relative to peers to improve their risk management practices. the banks were evaluated on whether, over the two - year period under stress assumptions, they were likely to be able to maintain a tier 1 capital ratio of 6 percent and a tier 1 common capital ratio of 4 percent. it is worth noting that for most banks it was the tier 1 common capital ratio that was most binding, and was the capital definition that best reflected the ability to absorb losses. of the 19 banks, nine were sufficiently capitalized to meet the minimum capital ratios under stress conditions, while ten had a combined capital shortfall of $ 75 billion. the banks with a capital shortfall were expected to provide detailed capital plans that included raising additional capital – by measures such as restricting payouts, raising new equity, selling assets, or utilizing capital available from the u. s. treasury. banks both with and without shortfalls aggressively sold assets and raised additional capital, resulting in a very significant recapitalization of the 19 banks over a relatively short period of time – as is apparent in the figures shown earlier. stress testing and discretionary capital distributions now i would like to mention the role of other stress testing in decisions to pursue, and approve, the resumption of discretionary capital distributions. the scap was designed to estimate how banks would perform under stress conditions. however, the economic assumptions and the impact of those economic assumptions on financial institutions were by definition educated estimates of potential outcomes. by the end of 2010, many banks were noting that they had substantially recapitalized and in some cases were now well above regulatory minimums – and thus would like to resume or increase stock buybacks or dividend payments. to evaluate the requests by banks to increase dividend payments, u. s. bank supervisors pursued an exercise known as the comprehensive capital analysis and review ( ccar ), and stress testing was one component of that broader exercise. while the stress testing element was only part of the ccar review, it was an important input into evaluating banks ’ capital planning. the assessment was conducted between november 2010 and march 2011. once again the largest 19 u. s. domiciled bank holding companies were asked to participate, using a baseline scenario, their own stress scenario, and a supervisor - provided stress scenario ( a set of macroeconomic assumptions consistent with an economic downturn ). a critical benchmark was whether banks could meet a 5 percent tier 1 common capital ratio under