What we need to do, then, is add a second lane to that road – a sound regulatory framework for the banking system – for that was an area in which the financial crisis laid bare a number of shortcomings. Significant progress has been made in the regulatory space in the more than seven years that have elapsed since Lehman Brothers went under.
Since we began routine stresstesting in 2011, the scenarios we use have featured severe global recessions characterized by major stress in the corporate sector, where large numbers of firms default on their loans and bonds. As actual economic conditions have improved, the scenarios have gotten tougher.