. in other words, a financial system that would be a source of strength during stressful periods. a key pillar was building resilience in the banking system. this effort was remarkably successful. over the course of the decade, capital and liquidity at the largest u. s. banks more than doubled. we began a program of rigorous annual stress tests to ensure the banking system was capitalized against severe recessions and financial market turmoil. the great recession also underscored the critical importance of the nonbank sector. here, too, the authorities have undertaken a number of steps to build resilience, although much remains to be done. in 2020 the financial system was again tested, facing a truly unprecedented shock as the pandemic brought the global economy to a standstill. investors scrambled for safety and liquidity during the " dash for cash. " financial markets came under extreme pressure. ultimately, the authorities had to support financial markets again as part of the extremely forceful monetary and fiscal response to the public health emergency. the banking system, however, was now far more resilient than it had been before the reforms and thus well positioned to absorb the shock. 2 / 4 bis - central bankers'speeches we cannot take the resilience of the financial system for granted, however. the multiple shocks we have seen over the past year or so - including the extreme volatility in commodity markets following russia's invasion of ukraine and, of course, surprisingly high and persistent inflation as well as the associated increase in interest rates - stressed a range of bank and nonbank financial institutions. three general observations stemming from the recent banking turmoil given the efforts to build resilience in the banking system over the past decade and a half, two natural questions are, why did silicon valley bank ( svb ) and two other sizable u. s. banks fail this spring, and why did credit suisse - a global systemically important bank ( g - sib ) - require a government - supported rescue acquisition? we are committed to learning the lessons from the u. s. bank failures for our program of supervision and regulation. i will offer three observations about the events. the first observation is that it is very difficult to resist the natural human tendency to fight the last war. in 2008 we saw banks come under stress from outsized credit losses and insufficient liquidity. such losses appeared possible in the early days of the 2020 crisis, although they ultimately did not materialize. in our stress tests,

jerome h powell : financial stability and economic developments speech by mr jerome h powell, chair of the board of governors of the federal reserve system, at the bank of spain fourth conference on financial stability, madrid, spain, 29 june 2023. * * * today i will briefly discuss the current economic situation and the stresses that emerged in the u. s. banking system earlier this year. i will then turn to the evolution of the financial system since the great recession and conclude with a few general observations. i will highlight how global efforts to boost resilience in the financial sector over the past decade have been an important success. i will also discuss how recent developments have revealed residual vulnerabilities that we are going to address, and the need to be vigilant for emerging risks. u. s. economic growth slowed significantly last year, and recent indicators suggest that economic activity has continued to expand at a modest pace. growth in consumer spending has picked up this year, and some indicators in the housing market have turned up recently. at the same time, activity in the housing sector remains far below its peak in early 2022, reflecting the effects of higher mortgage rates. higher interest rates and slower output growth also appear to be weighing on business fixed investment. the labor market remains very tight. over the past three months, payroll job gains have been robust. the unemployment rate has moved up but remains low. there are some signs that supply and demand in the labor market are coming into better balance, including higher labor force participation, some easing in nominal wage growth, and declining vacancies. while the jobs - to - workers gap has declined, labor demand still substantially exceeds the supply of available workers. inflation, however, remains well above our longer - run goal of 2 percent. over the 12 months ending in may, total personal consumption expenditures ( pce ) prices are estimated to have risen 3. 9 percent ; excluding the volatile food and energy categories, core pce prices likely rose 4. 7 percent. inflation has moderated somewhat since the middle of last year. nonetheless, inflation pressures continue to run high, and the process of getting inflation back down to 2 percent has a long way to go. since early last year, we have raised our policy rate by 5 percentage points. we see the effects of our policy tightening on demand in the most interest ratea€ “ sensitive sectors of the economy, particularly housing and investment. it will take time, however, for the full effects of monetary