Despite the stock market plunge, terrorist attacks, corporate scandals, and wars in Afghanistan and Iraq, we experienced an exceptionally mild recession - even milder than that of a decade earlier. As I discuss later, much of the ability of the U.S. economy to absorb these sequences of shocks resulted from notably improved structural flexibility.
But likewise, when the economy does slow down, and losses mount at the banks, the tests should moderate so that firms can draw on the buffers built up during good times to absorb those losses while continuing to provide credit to qualified borrowers.