isolation. this comparative approach promotes more - consistent supervisory standards. it also provides valuable systemic information by revealing how significant economic or financial shocks would affect the largest banks collectively as well as individually. third, the disclosures of stress test results promote transparency by providing the public consistent and comparable information about banks ’ financial conditions. the basic methodology of our stress testing has also not changed materially since the scap. we continue to take a multidisciplinary approach, drawing on a wide range of staff expertise. to begin the process, our economists create a hypothetical macroeconomic scenario that incorporates an assumed sharp deterioration in economic and financial conditions. supervisors estimate each bank ’ s expected losses and revenues and we use these estimates to project post - stress capital levels and ratios under that hypothetical scenario. the estimated capital ratios are then compared with regulatory benchmarks. we use a common scenario for all firms ; for the firms with the largest trading activities, we supplement the basic scenario with a market - shock scenario that incorporates market turbulence of severity similar to that of the latter half of 2008. on an individual firm basis and taking into consideration planned capital actions – that is, capital raises or distributions – all but 1 of the 18 firms evaluated this year had post - stress capital ratios above the regulatory minimum. bis central bankers ’ speeches although the basic goals and approach of stress testing have remained largely unchanged since the scap, the implementation has evolved and improved from year to year. for example, we have continued to refine the formulation of the hypothetical scenarios that form the basis of the stress tests. as explained in a statement we released in the fall, the severely adverse scenario is designed to reflect, at a minimum, the economic and financial conditions typical of a severe post - world war ii u. s. recession. 5 in devising recession scenarios, we draw on many of the same macroeconomic modeling tools used in making monetary policy. of course, not all significant risks facing banks are tied to the business cycle. accordingly, our scenarios now generally incorporate not only the typical consequences of a severe recession but also, simultaneously, other adverse developments such as an exceptionally large decline in house prices, sharp drops in the value of stocks and other financial assets, or a worsening of global economic conditions more severe than might normally be expected to accompany a deep recession in the united states. importantly, in specifying the severely adverse scenario, we seek to avoid adding to the procyclicality of the financial system. in other words, in applying

trading partners, also have extended the ongoing softness in the demand for u. s. goods and services. when the federal open market committee ( fomc ) met last month, with the economy not yet showing convincing signs of a sustained pickup in growth, and against the backdrop of our concerns about the implications of a possible substantial decline in inflation, we elected to ease policy another quarter - point. the fomc stands prepared to maintain a highly accommodative stance of policy for as long as needed to promote satisfactory economic performance. in the judgment of the committee, policy accommodation aimed at raising the growth of output, boosting the utilization of resources, and warding off unwelcome disinflation can be maintained for a considerable period without ultimately stoking inflationary pressures. * * * the prospects for a resumption of strong economic growth have been enhanced by steps taken in the private sector over the past couple of years to restructure and strengthen balance sheets. these changes, assisted by improved prices in asset markets, have left households and businesses better positioned than they were earlier to boost outlays as their wariness about the economic environment abates. nowhere has this process of balance sheet adjustment been more evident than in the household sector. on the asset side of the balance sheet, the decline in longer - term interest rates and diminished perceptions of credit risk in recent months have provided a substantial lift to the market value of nearly all major categories of household assets. most notably, historically low mortgage interest rates have helped to propel a solid advance in the value of the owner - occupied housing stock. and the lowered rate at which investors discount future business earnings has contributed to the substantial appreciation in broad equity price indexes this year, reversing a portion of their previous declines. in addition, reflecting growing confidence, households have been shifting the composition of their portfolios in favor of riskier assets. in recent months, equity mutual funds attracted sizable inflows following the redemptions recorded over much of the last year. moreover, strong inflows to corporate bond funds, particularly those specializing in speculative - grade securities, have provided further evidence of a renewed appetite for risk - taking among retail investors. on the liability side of the balance sheet, despite the significant increase in debt encouraged by higher asset values, lower interest rates have facilitated a restructuring of existing debt. households have taken advantage of new lows in mortgage interest rates to refinance debt on more favorable terms, to