In addition, last December, the Board put out a proposal for comment to introduce a systematically countercyclical mechanism in the component of the scenario that shocks house prices.7 Beyond these systematic elements, the assessment of vulnerabilities is a critical input in the development of scenarios for the stress tests each year to strengthen resilience against vulnerabilities that may be identified.
As I noted earlier, recent assessments have noted high levels of valuations across a broad set of asset markets and elevated business leverage in an environment where Treasury yields and term premiums have been relatively low by historical standards. In such circumstances, asset prices might be particularly susceptible to an unexpected development that accentuates downside risks to the macroeconomic outlook.