This reduction and enhancement of financial institutions’ Tier I capital have increased their capability to respond to a possible increase in demand for funds. Resilience of the financial system: macro stress testing The second reason is that the financial system as a whole seems to possess sufficient resilience against such shocks as a rise in interest rates and deterioration in economic conditions.
Since the real economy and the financial system affect each other, a significant negative shock can be amplified beyond the first-round effects, as in the case observed in the latter half of the 1990s, when a vicious cycle occurred as the result of a more cautious lending stance, deterioration in economic activity, a subsequent increase in nonperforming  BIS central bankers’ speeches  3  loans (NPLs), and a further cautious lending stance.