the scap include : a common stress scenario was applied to each of 19 large bank holding companies ( bhcs ). this stress scenario was applied in a consistent manner across these banks. the test was applied at the detailed trading book and banking book level, with the expected loss experiences based upon the particular characteristics of the portfolio being examined. so, for example, evaluation of a residential mortgage portfolio might include detailed factors such as fico scores and geographic distribution of the mortgages. this means that estimated potential losses under the stress scenario bis central bankers ’ speeches vary across banks not just because of differences in overall portfolio composition, but also because of differences in asset quality within particular asset classes. a minimum capital standard was applied after two years of stress and with appropriate reserves at the end of the two - year period. the minimum capital standard was set at 4 percent of tier i common and 6 percent of tier i capital. estimated potential losses were compared with the starting capital level and the estimated resources expected to be generated by the ongoing business – referred to as pre - provision net revenue ( ppnr ) – in order to determine the capital needed to meet the minimum capital standard. details of the test were disclosed on a bank - by - bank basis using a template that the federal reserve established. this common template ensured comparability across the 19 bhcs and ensured that the federal reserve controlled the message, not the banks. in contrast, while ccar had an embedded stress test, the key attributes of the ccar are quite different : the purpose was to assess the bhcs ’ capital planning processes to ensure that the bhcs have good capital plans in place. stress tests were applied by individual banks as part of this exercise. we set the main scenario that the banks must use, and the banks were required to apply the stress test in the manner they deemed appropriate in assessing their capital adequacy. supervisors used independent quantitative techniques both as a check on firm estimates and to assist in their evaluation of the firms ’ tools and processes. we evaluated their efforts in terms of : 1 ) how the stress test is applied, 2 ) what this implies in terms of capital adequacy, and 3 ) their capital plans and requests to pay dividends and / or conduct share repurchase programs. our evaluation of their capital planning processes and their requests to make capital disbursements was based mainly on three factors : 1 ) capital adequacy, 2 ) the quality of the capital

the target inflation rate over the medium - to - long term, and policy management is pursued with plenty of room for discretion inclusive of allowing the inflation rate to diverge from the target rate in the short run. what matters is a thorough explanation with respect to such short - term divergence from the target, and, in this sense, inflation targeting plays a role as an important communications tool for the central bank to explain the conduct of monetary policy. in contrast, as i previously said, current arguments in japan regard inflation targeting as a measure to overcome deflation. in my opinion, as interest rates have reached virtually zero percent amid japan's economy shouldering various structural problems and monetary policy has been hampered to a great extent, it is not appropriate to adopt inflation targeting. to be sure, changing expectations with respect to inflation is one way to lower real interest rates. however, it is unreasonable to expect that public expectations can be so easily changed just by what the authorities say in the absence of effective policy measures and mechanisms. in addition, not only would inflation targeting be ineffective but if its adoption also provoked expectations among the public that the bank of japan might adopt extreme measures which impair the creditworthiness of japan's economic policy as a whole, it would greatly destabilize the markets and the economy. the third reason is that inflation targeting arguments are based on the argument that deflation is a monetary phenomenon. while many tend to justify this assertion by saying it is in every textbook of economics, i believe that, in mapping out policies in japan, it is necessary to apply theories taking into account the fact that the economy faces the zero interest rate bound and the nonperforming loan problem. several important chapters about deflation and policy responses could be added to current economic textbooks when the experience of japan and other countries are thoroughly analyzed. as previously mentioned, the problem is that the mechanism to increase money itself is greatly constrained. as a consequence, any argument that everything will be solved as long as money can be increased avoids the essential policy problem. for these reasons, it is not appropriate to adopt inflation targeting at this point. but this by no means signifies that the bank of japan tolerates a decline in prices. the bank of japan has been making utmost efforts to promptly bring japan's economy back onto a sustainable growth path and to realize a situation which enables prices to escape from the declining trend. the bank's current commitment to continue monetary easing until the consumer price index registers stably