the government gave the fpc the power to set a leverage ratio by direction to the pra. the initial ratio of capital to unweighted assets was chosen by the fpc to complement the risk - weighted capital framework and to be in line with the level endorsed by the bcbs. the precise requirements were calculated to be consistent with a minimum average risk weight of 35 %. this gives a minimum leverage ratio of 3 %, with addons for individual firms to reflect any systemic risk and counter - cyclical buffer requirements, at 35 % of the relevant buffer rates. details on what capital can be used to meet these requirements have also been specified. the fpc plan to extend the leverage ratio to all the remaining authorised banks, building societies and investment firms from 2018, subject to the outcome of the anticipated 2017 international agreement. stress testing it can be difficult to set capital requirements to meet possible losses, without specifying the likely extent of future stress. stress testing addresses this by a process of modelling losses under a range of macroeconomic scenarios, to ensure that a firm holds sufficient capital ex ante to withstand shocks of a specified degree of severity. an example might be to assume a recession, with an attendant housing market fall which would stress a portfolio of mortgage loans. in 2014 the fpc, supported by the pra, undertook and published simultaneous, standardised stress tests for the major uk banks for the first time, following a partial exercise in 2013. 3 meeting minimum prudential requirements after a stress may not be sufficient to ensure financial stability. if a financial firm needs to rebuild its capital ratios then it can do so either by raising more capital or by reducing its assets. in the event of an economy wide stress, this latter approach could amplify the cycle if, say, all banks responded to lower capital by reducing their lending. the stress tests are therefore seeking to ensure that the banks have sufficient capital to at least maintain their levels of lending to the real economy and the stress tests are calibrated assuming that lending is not reduced beyond that which is driven by reductions in demand. the uk is not the only country with stress testing as part of its supervision tool kit : the us undertakes regular public stress tests of the major banks operating there and the european banking authority has also orchestrated stress tests across the major european banks. the uk supervisors had previously undertaken such tests, but not necessarily the same stress bank of england october, 2014. “ the financial policy committee ’ s review of the leverage

ratio now at its highest level since the end of the recession. however, measures of aggregate wage growth have remained quite subdued, which suggests there is still some slack in the labor market. an important question is how to reconcile these cross - currents. i continue to anticipate that consumption and housing activity will expand at a moderate pace this year. continued job and wage gains, combined with still - low energy prices, should sustain real disposable income growth and support consumer spending. the housing market should remain on a solid trajectory, supported by rising employment and low mortgage rates. in contrast to previous years, fiscal policy should also provide a moderate stimulus this year. i believe that these positive factors will be sufficient to offset weakness in other areas, such as net exports and fixed business investment that will continue to be adversely impacted by the still - strong dollar, weak foreign growth, and low energy and commodity prices. putting this all together, i expect real gdp growth of about 2 percent in 2016, slightly below the average pace of growth in this expansion, but a bit above my estimate of the potential growth of the u. s. economy. if this materializes, then we should see some further reduction in the unemployment rate to around 4¾ percent – my estimate of the rate that i view as consistent with stable inflation over the long term. turning to the outlook for inflation, on a year - over - year basis, both headline and core inflation have recently risen above the low levels that prevailed through most of 2015. nevertheless, inflation still remains below the federal reserve ’ s 2 percent objective. as the fomc noted in its march statement, this continued low inflation is partly due to declines in energy prices and non - energy import prices. although energy prices have stopped falling and the dollar has stopped appreciating, earlier movements in these factors still appear to be weighing on inflation. a concern with this long period of low inflation is that it has the potential to reduce inflation expectations, which, in turn, would tend to continue to hold down inflation. as past experience shows, it is difficult to push inflation back up to the central bank ’ s objective if inflation expectations fall meaningfully below that objective. japan ’ s experience is cautionary in this regard. recent evidence on inflation expectations suggests some firming, but there is still cause for concern. although both measures of longer - term inflation compensation based on nominal and inflation - indexed treasury securities as well as some survey measures of inflation expectations have risen