tool for supervisors in quantifying the vulnerabilities of regulated entities or those of the financial system as a whole. they are both a micro and macro - prudential tool for financial supervisors and central banks. as an aside, let me remind you that this year the larger insurance undertakings will also undergo a stress test. the methodology and parameters of this stress test are currently being finalised at eiopa. the scenarios for this insurance exercise will be different to the ones used for the banking exercise. scenarios are chosen to reflect the risks and vulnerabilities of each sector. tailored scenarios are needed to maximize their relevance. there is no read across from the set of parameters chosen for insurance stress testing to the set chosen for banking. for insurance undertakings, natural catastrophes and a prolonged period of low interest rates would be two significant challenges to their resilience. in banking, the main vulnerabilities centre on the course of risk aversion, credit quality, balance sheet repair, and policy reforms. the knock - on effects of adverse development on one or several of these fronts would alter the paths of a number of macroeconomic variables such as gdp growth, consumer price inflation, real estate prices and unemployment. so where and when are these stress tests decided? the baseline for the next three years is to be provided by the european commission, starting with their 2014 and 2015 economic forecasts. as for the adverse scenario, it is a matter for the esrb and eba to decide. meetings of their respective boards will be held shortly so that the scenarios can be finalised and published soon. the overarching objective of the stress test element of the comprehensive assessment is to build on and compliment the asset quality review. the stress test will provide a forwardlooking view of banks ’ shock - absorption capacity under stress. the stress testing process will overlap with the aqr so that an initial forward looking assessment can be made at the end of the summer. this will allow aqr specific adjustments, for example to the assumed level of provisions required and common equity tier 1 ( cet 1 ) ratio, to be integrated into overall results and applied to derive the final capital assessment. so both the aqr and stress tests will be published at the same time – in november. a framework for disclosure will be agreed across countries and banks. banks will have to pass capital thresholds of 8 per cent for the baseline scenario and 5. 5 per cent for the

. " stability is a necessary condition for sustainable growth " has become the universal central - banking credo - though that doesn't necessarily make it any easier to achieve! this emphasis on macro - economic stability - and sustainability - has served to focus attention increasingly on the supply - side of our economies - on structural reform and supply - side flexibility - as the key to raising the underlying rate of growth which our economies can maintain. and that is the second general trend i'd like to touch upon. it has meant increasing reliance upon free markets - again both nationally and internationally - to allocate productive resources to where they can most effectively contribute to meeting demand. the collapse of communism is a dramatic example, but the promotion of free trade through the wto and of the free movement of capital through the imf, or the spread of privatisation and deregulation all around the world, not least in financial markets, can all be seen as aspects of essentially the same thing. this emphasis on free markets cannot mean " anything goes ". public policy concerns, of course, remain ; and we need to have rules to ensure that competition is fair as well as free. but it does mean less centralised, bureaucratic, intervention telling people what they may or may not do, leaving them much greater freedom to do what they choose provided they meet the necessary nationally or internationally agreed standards. the resulting intensification of competition can, of course, be uncomfortable for existing producers - and can lead to protectionist pressures at the micro - economic or even the national level - so we still have a long way to go. but it is increasingly accepted as the best means we have raising the sustainable rate of growth - and employment - and living standards - at the macro - economic, and international, level. these trends together have resulted in substantial economic progress in most of the developed economies. but - and this is the third theme i would draw attention to this morning - there was growing recognition of the fact that not all countries were equally well - placed to share in the potential benefits of free markets within a stable macro - economic framework, and of the need - as a matter of self - interest and not just social responsibility - to help draw other countries in to the global economy. emerging markets and transition economies have increasingly gained access to international capital markets. and there is an increasing emphasis on the need to help the poorest countries that are seeking to help themselves to participate. this last concern will be on the agenda