And I know that all of us – supervisors and supervised alike – have the same goal: a stable banking system for a strong economy. Yet we can only succeed if we work together. So I propose that we use this event as an opportunity to share our views and experiences. Dialogue is vital to banking supervision.
Probability distributions that are estimated largely, or exclusively, over cycles excluding periods of panic will underestimate the probability of extreme price movements because they fail to capture a secondary peak at the extreme negative tail that reflects the probability of occurrence of a panic. Furthermore, joint distributions estimated over periods without panics will misestimate the degree of correlation between asset returns during panics.