, and markets more generally to make more informed judgments on the condition of u. s. banking institutions. coupled with other regulatory measures, this transparency should in turn increase market discipline. this level of transparency also subjects us to greater outside scrutiny and analysis, a process that increases our accountability as regulators and helps us improve our assumptions and methodology over time. these choices for greater transparency in the supervisory stress tests and ccar have prompted healthy discussion on the merits of disclosure in other supervisory areas. as i think everyone in this audience knows, we have not disclosed the supervisory models themselves. we do not want firms simply to copy our modeling in their own assessment of risks and capital needs. and we certainly do not want them to construct their portfolios in an effort to game the model – a kind of analogue to teaching to a test. but even though we do not publicly release the models, we have put systems in place to ensure oversight and accountability. the models are evaluated by a special model validation group made up of experts within the federal reserve who do not work on the stress tests. we have also created a model validation council made up of outside experts to provide independent views and advice. 10 the third important effect of the supervisory stress tests and ccar has been to pave the way for other horizontal, simultaneous supervisory exercises. we created the large institution supervision coordinating committee ( liscc ) in 2010 to implement an approach to supervision of systemically important firms that was better coordinated, more data - driven, and more focused on the largest institutions as a group. 11 while ccar includes a number of firms that are not in the liscc portfolio, the stress tests and ccar have been the proving ground for liscc, and as the committee has evolved to administer these programs more efficiently, these exercises have shown the way to other horizontal supervisory exercises or assessments. some, like the newer comprehensive liquidity analysis and review, which focuses on assessing liquidity sufficiency and banks ’ internal liquidity risk - management practices, are intended to be recurring. others are ad hoc efforts responsive to more episodic or transitory concerns. fourth, and in some sense an extension of the prior point, ccar in particular has defined an approach toward developing and maintaining better risk management within the banking organizations subject to these exercises. let me turn now address this topic in somewhat greater detail. see board of governors of the federal reserve system ( 2014 ), dodd - frank act stress test 2014 : supervisory stress test methodology and

daniel k tarullo : stress testing after five years speech by mr daniel k tarullo, member of the board of governors of the federal reserve system, at the federal reserve third annual stress test modeling symposium, boston, massachusetts, 25 june 2014. * * * born of necessity during the depths of the financial crisis as part of an effort to restore confidence in the u. s. financial system, supervisory stress testing has in the intervening five years become a cornerstone of a new approach to regulation and supervision of the nation ’ s largest financial institutions. first, of course, it is a means for assuring that large, complex financial institutions have sufficient capital to allow them to remain viable intermediaries even under highly stressful conditions. more broadly, supervisory stress testing and the associated review of capital planning processes have provided a platform for building out a regulatory framework that is more dynamic, more macroprudential, and more data - driven than pre - crisis practice. each year we have refined elements of both the substance and process of the stress tests. these changes have been informed not only by our own experience, but also by critiques and suggestions offered by others. this annual symposium hosted by the federal reserve bank of boston has become an important channel for eliciting reactions and advice from outside experts and the banks subject to the annual comprehensive capital analysis and review ( ccar ). although the major elements of our approach have now been successfully established, i anticipate that we will continue to make enhancements. if supervisory stress testing is to give regulators, banks, and the public a dynamic view of the capital positions of large financial firms, it must itself respond to changes in the economy, the financial system, and risk - management capabilities. this morning i will give a retrospective on the first five years of supervisory stress testing, highlighting some of the accomplishments and identifying some areas in which we may consider changes in the future. then i would like to turn to a topic that has gained increasing attention in the past couple of years – the qualitative assessment of firms ’ capital planning processes that we conduct in parallel with our quantitative assessment of firms ’ capital positions. from scap to ccar the potential value of comprehensive stress testing had been much discussed among academics, analysts, and regulators in the years preceding the financial crisis, but only during the crisis was this supervisory tool first used at the same time across the largest firms. the supervisory capital assessment program ( scap ) demonstrated in practice, not just in theory