absorbing capacity, this capital buffer requirement will act to offset any funding advantages for g - sifis, helping to level the playing field with smaller, less complex financial institutions. together, when fully implemented, these changes should reduce the failure risk for g - sifis. to complement the basel framework, i believe that jurisdictions need to create processes and incentives for management of g - sifis to act earlier and more decisively in response to emerging risks facing their firms. proactive interventions by the senior management of banks will have a greater efficacy and a lower cost than reactive steps taken only in response to growing market pressure. these proactive management interventions can take many forms bis central bankers ’ speeches including raising additional capital, cutting capital distributions, restructuring business lines and making difficult personnel changes. avoiding a hazard is easier if one ’ s focal point is kept well down the road. official sector stress tests are an important tool that can facilitate this forward - looking management focus. one example is the comprehensive capital analysis and review ( ccar ) process in the united states. the goal of ccar is to ensure that banks have robust, forward - looking capital planning processes, as well as sufficient capital to withstand severely stressed economic conditions while, maintaining their ability to perform their critical roles of credit intermediation. in ccar, each of the participating banks is required to project the impact of particular forward - looking stress scenarios on their operations over a two - year horizon. both the banks and the supervisors conduct independent assessments of the impact of the stress scenarios on the various business lines of the bank. this approach provides a cross - validation of each bank ’ s analysis, while at the same time generating results that can be compared across the participating banks. another important feature of ccar is that the scenarios and the key aspects of the banks results are made public rather than treated as confidential supervisory information. this transparency is important for supporting market confidence in the banking system. finally, a critical aspect of the stress testing process is the supervisory review of the capital planning process for each participating bank. this planning process is what reinforces and promotes a proactive stance by management to emerging risks. the structure of bank management compensation also could be designed to provide incentives that reinforce a proactive, forward - looking risk management approach. as i will discuss in a moment, sufficient long - term debt that can be converted to equity is an important element of an effective resolution mechanism for g - sifis. while the magnitude of this longterm

. further, asking about the rate of inflation directly produced answers more consistent with the concept of forward inflation expectations of interest to central banks. rather than replicating the michigan long - term inflation expectation question replacing “ prices in general ” with the “ rate of inflation ” we decided to work with a medium - term explicit horizon and use only a probabilistic version of the question. so for example, in the most recent fielding of our survey, the panel was asked : bis central bankers ’ speeches in your view, what would you say is the percent chance that the following things may happen to the rate of inflation / deflation over the one - year period between february 2013 and february 2014? chart 6 gives you the question in full. we have been fielding the forward inflation expectation question since spring 2008, and chart 7 contains some time - series information from the responses. we use established statistical techniques to estimate continuous probability distributions from each individual set of responses. we then find the median of the medians of the individual distributions to represent the average forward expectation and the upper and lower quartiles of the individual medians to measure disagreement across respondents. for our measure of uncertainty we report the median of the individual inter - quartile ranges. as a complement to attempting to improve the measurement of household forward inflation expectations, we have also been investigating expectations about wage growth. because firms and workers may negotiate changes in wages to be in line with their expected rate of inflation, data on wage expectations are an additional information source for analyzing inflation dynamics and the interaction between wage and price determination. furthermore, discrepancies between expected changes in wages and expected inflation may affect households ’ financial decisions. despite the obvious importance of wage expectations, information on wage expectations is particularly scarce. in formulating a question on wage expectations we needed to pose a hypothetical situation to gain information of direct relevance to inflation. it is easiest to illustrate this by giving you the format and exact wording of the question : we first asked individuals who reported to be working for pay how many jobs they had. we then informed them that in some subsequent questions we would ask about their main job, which we defined to be the job at which they usually work the most hours. we then ask : “ suppose that, 12 months from now, you actually are working in the exact same [ main ] job at the same place you currently work, and working the exact same number of hours. twelve months from now, do you expect your earnings on this job