for global capital flows, foreign exchange valuation and financial asset prices even if it is mostly anticipated when it occurs. which leads to the key question i want to address in the remainder of my remarks : what should the federal reserve do to minimize the impact? like other central banks, our monetary policy mandate has a domestic focus. our monetary policy actions, though, often have global implications that feed back into the u. s. economy and financial markets, and we need to always keep this in mind. from one perspective, the unconventional nature of monetary policy around the world adds little that is fundamentally new to the challenges that face emes. today ’ s monetary policies simply represent a way of easing that was necessitated by hitting the zero lower bound here and elsewhere. central bankers have managed differences across countries in cyclical positions and policy stances many times in the past. this time should not be fundamentally different. but, from another perspective, we have less experience operating with unconventional monetary policy, we have been in this regime for a long time and this creates more potential uncertainties. these uncertainties put a premium on clear communication among central bis central bankers ’ speeches bankers as well as between central bankers and market participants. in my view, an important fact is that the large scale asset purchase programs undertaken in the united states and elsewhere have dramatically shrunk the size of bond risk premia globally. this new set of monetary policies affects financial asset prices in a different way compared to changes in short - term interest rates, and we should be humble regarding what we claim to understand about this distinction. looking ahead, it seems likely that markets will remain focused on those vulnerabilities that they might have ignored prior to the taper tantrum in 2013. the greater premium on strong fundamentals, policy coherence and predictability will likely remain. although we will undoubtedly experience further bumps in the road. i think we can remain generally optimistic about the prospects for adjustment. but for this to occur, it will be important for market participants to appropriately discriminate across countries, rather than treating emes as a single group. the good news is that many emes generally appear to be better equipped today to handle the fed ’ s prospective exit from its exceptional policy accommodation than they were during past tightening cycles. this reflects the fundamental reforms that emes have put in place over the past 15 years, as well as the hard lessons learned from past periods of market stress. among the positives are : • the absence of peg

. however, our experience during the stress test has already suggested some possible reasons. first, not surprisingly, the supervisory perspective on stress test modeling tends to be somewhat more conservatively inclined than that of the firms. second, federal reserve modeling generally avoids the assumption that loss experience during a period of high stress can be the full 2012 report, including methodology and results, is available at www. federalreserve. gov / newsevents / press / bcreg / bcreg20120313a1. pdf. bis central bankers ’ speeches extrapolated from experience in more normal times, whereas at least some firm modeling uses roll rates and other such extrapolations that may not be as useful for measuring losses in tail events. a third, and related point, is that for some loan types the federal reserve model incorporates nonlinear effects of the macroeconomic scenario. for example, a 20 percent decline in national house prices would mean that prices would decline substantially more in some markets and less in others, and losses in areas where house prices decline more would be disproportionately greater than losses in areas where house prices decline by less. the result would be higher overall losses than if prices had declined by a uniform 20 percent everywhere. fourth, supervisors had the advantage of seeing the modeling practices of all 19 of the firms and were able in some instances to identify outliers in terms of assumptions and practices. our disclosures – both of our methodology and of the results – seem to have struck about the right balance between providing useful information to investors, counterparties, and the public, on the one hand, and protecting proprietary information whose release might result in competitive harm to firms, on the other. however, as with all aspects of the stress test and ccar, we welcome any suggestions for improvement here as well. as to procedure, we have already decided on several changes for next year. first, the timing of the ccar will change, so that the decisions on objection or non - objection will apply to capital actions beginning in the second quarter of 2013. that is a shift from the first two ccars, in which the supervisory responses covered first quarter capital plans, but those responses were not delivered until late in that quarter. second, now that the regulatory reporting mechanisms for data collection are in place, we will be able to begin the analysis earlier, thereby providing more time to both firms and supervisors to run the stress tests. incidentally, because these reports will be filed quarterly