less binding on banks as the recovery has gathered strength. thus, losses on loans and positions in the severely adverse scenario among participating banks have declined over time as the economy has strengthened. for example, in the 2016 exercise, losses amounted to $ 526 billion, while in 2017 they had fallen to $ 493 billion, despite a larger increase in the unemployment rate in the scenario. as economic conditions strengthen, typical measures of underwriting quality look strong, delinquencies fall to low levels, and profits rise consistently, all of which could lead to lower projected stress losses. of course, these effects tend to reverse during bad economic conditions : underwriting deficiencies tend to be revealed, delinquencies to rise, and profits to fall. thus, capital requirements based on stress tests alone are unlikely to completely compensate for the financial system ’ s natural pro - cyclicality. in part for that reason, we also have a specifically countercyclical capital requirement that applies to the largest banks. countercyclical capital requirements can lean against a dangerous increase in financial vulnerabilities at a time when the degree of monetary tightening that would be needed to achieve the same goal would be inconsistent with the federal reserve ’ s dual mandate of full 4 / 7 bis central bankers'speeches employment and price stability. the reverse is also true. the countercyclical capital buffer ( ccyb ) is designed to increase the resilience of large banking organizations when there is an elevated risk of above - normal losses, which often follow periods of rapid asset price appreciation or credit growth that are not well supported by underlying economic fundamentals. the ccyb is an additional margin of capital that the nation ’ s largest banks can be asked to build to augment resilience at times of rising cyclical pressures and to release as the economy weakens in order to allow banks to lend more when it is most needed. the ccyb framework, which was finalized in september 2016, requires the federal reserve board to vote at least once per year on the level of the ccyb. put simply, the criterion for raising the ccyb above its minimum value of zero is that financial risks are assessed to be in the upper one - third of their historical distribution. our assessment of financial vulnerabilities is a key input into the federal reserve board ’ s decisions surrounding the setting of the ccyb, along with a variety of other model - based and judgmental criteria. on december 1,

, the fomc lowered its target for the federal funds rate 50 basis points before the reopening of the markets on monday, september 17, 2001. in explaining its action, the fomc pointed to a less sanguine economic outlook and to significant downside risks associated with that outlook. besides the crisis of 1998 and the september 11 terrorist attacks, other episodes of financial turmoil were important, but these episodes did not raise the same level of concern that the negative shock might be transmitted to the nonfinancial economy in a rapid and disorderly fashion. for example, the significant decline of stock prices starting in 2000 was not accompanied by a major market malfunctioning, and the resulting loss of equity wealth did not seem likely to have negative ramifications for the real economy that were so immediate and severe as to be considered a crisis. similarly, the major accounting and corporate scandals of 2002 led to a significant widening of risk premiums and much anxiety about the veracity of many corporations'financial statements. but for the most part, the markets again functioned smoothly and risks seemed to be priced normally. finally, the more pronounced interest rate volatility during the summer of 2003, which appears to have been significantly amplified by mortgage hedging, created some short - lived market difficulties. but again, this volatility seemed unlikely to have significant effects on the real economy. despite the rarity of internally generated financial crisis, some argue that ongoing trends in the united states should be examined closely for their potential effects on financial stability. four trends are often mentioned. the first is increased concentration in the financial services industry. in particular, consolidation has resulted in a smaller number of firms doing a larger share of the bank lending throughout the world. for example, the origination and servicing of consumer loans have become more concentrated. for the most part, these rising levels of concentration appear to be motivated by cost savings that are often attributed to economies of scale, or by expectations of greater revenue stability derived from either greater diversification of products or greater geographic diversification. while the risks to financial stability that arise from the creation of a small number of large and complex firms are obvious, there may be benefits as well. greater concentration in financial services has the potential to have some positive impact on financial stability because lower costs can allow firms to build the capital reserves that help insulate them from shocks, and greater diversification can reduce firm risk. moreover, the market and financial supervisors are requiring the adoption of