Using the supervisory stress test to guide a risk-sensitive capital regime seems far preferable to reliance on a bank’s internal models, which have proven problematic as a basis for risk-based capital requirements under Basel II. 12 The progressive implementation of this capital regime has substantially increased the resiliency of the largest banks.
The strong cyclical momentum and the significant reduction of economic slack give grounds for greater confidence that inflation will converge towards our inflation aim. At the same time, domestic price pressures remain muted overall and have yet to show convincing signs of a sustained upward trend.