In those instances in which expectations displayed signs of overreaction to current events – such as surging oil prices – our renewed emphasis in communication on our objective, on the vigilance and determination that we would apply to enforce it, on our steady alertness, provided effective resistance to inordinate developments.
Stress testing of estimates of counterparty credit risks should also be required. The logic is the same as for market risk. The factors that are used to determine supervisory capital requirements for counterparty credit exposures are based on statistical analyses of non-panic periods. Moreover, during panic periods the usual assumption that potential future exposures are uncorrelated with default probabilities becomes invalid.