Yet sometimes a crisis also accelerates adoption of policies and practices that might beneficially have been implemented beforehand and then are sensibly continued after the crisis has passed. This evening I will examine an instance of this latter phenomenon, as defined by the Federal Reserve’s experience with comprehensive stress testing of major financial institutions during the crisis.
The Supervisory Capital Assessment Program (SCAP) was fashioned in early 2009 as a key element of a crucial plan to stabilize the U.S. financial system. The stress tests, as they have been popularly called, required development on the fly, and under enormous pressure, of ideas that academics and supervisors had been considering for some time.