The Bank’s basic thinking has been that (1) given the extremely accommodative financial conditions, the level of interest rates is to be raised if Japan’s economy is to follow a path of sustainable growth under price stability, and (2) the pace of increase in interest rates should be determined in accordance with improvements in the economic and price situation without any predetermined view.
The results of these stress tests were presented jointly by the Federal Reserve and the SEC to the managements of Lehman and the other firms. Lehman’s results showed significant deficiencies in available liquidity, which the management was strongly urged to correct. The Federal Reserve was not aware that Lehman was using so-called Repo 105 transactions to manage its balance sheet.