And finally, we required a management process that included crucial checks and balances and further work by banks toward stress testing, including testing involving scenario analysis. These were the “qualitative” aspects of the standard. Results of stress tests, for example, were to be considered subjectively by management in evaluating a bank’s market risks and overall capital adequacy.
At the time, many of these elements were criticized as excessive, producing much too large capital requirements. The jury on that point may still be out, but at least the standard performed well last year.