stress capital buffer requirement can provide room to explore a wider range of vulnerabilities to inform riskbased supervision. for example, if the purpose of the exploratory scenario is to inform the board or the public about new or underappreciated risks, the board could explore the impact of a scenario using a different set of variables than the ones it has currently defined in its policy statement. - 10 - additional exploratory stress test scenarios could allow supervisors to better probe the internal risk management of firms and assess whether they are holding sufficient capital for their risks. for example, the 2018 stress test revealed that one firm had highly concentrated counterparty exposures that would materialize under the hypothetical stress scenario. this led to supervisory feedback to that firm and its prompt mitigation of the concern. we should continue to enhance the feedback loop between supervision and stress testing. we can also learn from our international counterparts, who have effectively employed exploratory stress tests. since 2017, the bank of england has run a biennial exploratory scenario designed to explore risks not covered by their annual capital stress test. the results of their exploratory tests are used to improve supervisory feedback related to the risk management of firms. while the results of our stress test are informative and provide a rigorous measure of resilience, the supervisory stress test is not a replacement for a firm ’ s own risk management or its own stress testing processes. large banking organizations should maintain a solid line of sight into their own risks and focus their efforts to capture those risks and determine capital needs. our stress test is designed to provide a consistent measure of risk across firms, and is not a replacement for comprehensive modeling, risk management, and capital planning by the largest banks that enable them to measure and manage their own unique risks. the future evolution of stress testing exploratory scenarios would also allow the board to have more flexibility in its modeling approaches. for example, the board could explicitly model the behavioral response of depositors to losses, allowing for contagion of the type we saw earlier this year, the interaction of - 11 - the broader economy and the banking system under stress, or the transmission of stress through nonbank parts of the financial system. 18 the bank of england ’ s recent stress tests included a set of models to better understand how feedback and amplification channels during a stress event could drive contagion losses and exacerbate the impact of an initial shock. these feedback

and federal reserve board, statistical release z. 1,'financial accounts of the united states.'figure 2 banks'cet1 risk - based capital ratio ratio q4 quarterly u. s. g - sibs large non – g - sibs other bhcs note : the data are seasonally adjusted by federal reserve board staff. the sample consists of domestic bank holding companies ( bhcs ) and intermediate holding companies ( ihcs ) with a substantial u. s. commercial banking presence. u. s. g - sibs are u. s. global systemically important banks. large non - g - sibs are bhcs and ihcs with greater than $ 100 billion in total assets that are not g - sibs. cet1 stands for common equity tier 1 capital, which is the numerator of the cet1 ratio. before 2014 : q1 ( advanced - approaches bhcs ) or before 2015 : q1 ( non - advanced - approaches bhcs ), the numerator of the cet1 ratio is approximated by tier 1 common capital. the denominator is risk - weighted assets. the shaded bars indicate periods of business recession as defined by the national bureau of economic research : march 2001 - november 2001, december 2007 - june 2009, and february 2020 - april 2020. source : federal reserve board, form fr y - 9c, consolidated financial statements for holding companies. may 07, 2024 figure 3 uninsured deposits percent of assets quarterly q4 u. s. g - sibs large non - gsibs regional note : uninsured deposits are reported by banks with total assets above $ 1 billion. for smaller banks, uninsured deposits are estimated based on the amount in large deposit accounts, excluding the first $ 250, 000 in each of those accounts. u. s. g - sibs are u. s. global systemically important banks. large non - g - sibs are bank holding companies and intermediate holding companies with greater than $ 100 billion in total assets that are not g - sibs. regional are banks with between $ 10 billion and $ 100 billion in total assets. source : federal reserve board staff calculations based on federal reserve board, form fr y - 9c, consolidated financial statements for holding companies and federal financial institutions examination council, call report form ffiec 031, consolidated reports of condition and income ( call report ). figure 4 commercial real estate loans