have been making adjustments in the wake of the financial crisis to innovations such as stress testing, a public process that in my view has helped make financial oversight more effective. the thoughts that i am airing in these remarks, part of a public process of discussion and debate, should be seen as a continuation of the review and adjustment that has been taking place since the financial crisis. the goal is to simplify rules that have grown more complex in the past decade and in some cases redundant and harder to understand. my second goal, in considering these adjustments, is to maintain the high level of loss - absorbing capacity in the u. s. banking system. our financial system today is far more resilient than it was before the crisis and i want to maintain that resiliency. we are all better served by wellcapitalized banks that have the ability to continue lending to households and businesses even during stressful times. adjusting regulation in measured ways, such as those i will describe, is an appropriate and, in fact, necessary way to preserve the success we have achieved in strengthening the financial system. before i delve into describing the future direction of our stress testing and capital frameworks, allow me to begin with some background on the origins of the stress testing program and an 1 / 5 bis central bankers'speeches overview of the changes we have made to our capital requirements since the financial crisis. background on the fed ’ s stress testing program at the height of the crisis, as a way to help restore confidence in the largest u. s. banks, the fed created the supervisory capital assessment program ( scap ) to estimate potential losses at those banks, if economic and financial conditions worsened. building on the success of scap, the board moved to the current stress testing assessment, known as the comprehensive capital analysis and review ( ccar ), to evaluate whether the largest firms have sufficient capital to continue to lend and absorb potential losses under severely adverse conditions. at the same time that we were building our stress testing program, we were also making changes to capital rules to address weaknesses observed during the crisis. these included new minimum capital requirements and a capital buffer on top of these requirements. the buffer puts increasingly strict and automatic limits on capital distributions as a bank ’ s capital declines toward the minimum. large banks are also subject to a potential countercyclical capital buffer ( ccyb ), which i will discuss more shortly. and the largest banks are subject to an additional buffer of capital based on a measure

, leverage in the nonfinancial sector, maturity and liquidity transformation in the financial sector, and asset valuation pressures. right now, our policy is to maintain a 0 percent ccyb when vulnerabilities are within the normal range, as they happen to be now. when we determine that vulnerabilities have risen to be meaningfully above normal, the purpose of the ccyb is to increase capital to a level that compensates for those other rising vulnearbilities and thus reduces risks back to a normal level. some of those vulnerabilities have indeed been rising in recent years, but because of the strength of our capital requirements and ccar, our assessment of overall vulnerabilities remains moderate. this raises the question of whether our through - the - cycle capital levels in the united states have been set so high, that our ccyb is effectively already “ on " : we already have capital at a level that compensates for these increases in vulnerability, but because we did not reach that capital level through activiation of the ccyb, we have no way of acting countercyclically in a future downturn. i would advocate for revisiting that policy so that the ccyb is more closely integrated into our overall capital framework, allowing greater scope for dynamic adjustments. while the board has maintained the ccyb at zero since 2016, other countries have adjusted their countercyclical buffers in response to vulnerabilities within their financial sectors or, in the case of the united kingdom, to integrate its ccyb with its structural capital requirements. for example, i find the u. k. framework, adopted by their financial policy committee, to be quite compelling. specifically, under the british framework, the ccyb would equal a positive amount — in the british case it ’ s 1 percent — in standard risk conditions. the effect of the policy is that the buffer can be varied in line with the changing risks that the banking system faces over time. i see real merit in application of the u. k. approach in the united states, although the specific percentage would of course be open to analysis. it could provide a flexible mechanism that could complement other modifications to the scb framework and allow the board to adjust capital requirements as financial risks are evolving. in addition, making greater use of a countercyclical capital buffer would quite directly advance the goal of making the overall capital regime less procyclical. ultimately