Whether the set of banks that continue to be subject to annual DFAST supervisory stress testing represents a large enough share of the overall banking industry and sufficiently spans the range of banking activities to provide a comprehensive perspective is something that merits monitoring and analysis. Consistency The second element we identified as contributing to the SCAP’s macroprudential effectiveness was consistency. In the SCAP, as in the current supervisory stress testing regime, all banks were subject to the same hypothetical stress scenario—that is, the same set of assumptions about the path of economic activity, interest rates, asset prices and volatility over the future stress test horizon. In SCAP, the scenarios were defined in a very parsimonious way, using just three variables (GDP growth, unemployment and housing prices). In contrast, the current supervisory stress test scenarios involve more than two dozen variables describing U.S. and foreign economic activity, interest rates and asset prices. Then, as now, the common scenario provided a consistent framework for assessing the vulnerability not just of the individual banking companies, but of the banking system as a whole. This consistency is especially important to address cyclical macroprudential objectives, as it provides a unified assessment of the performance of the overall industry. And of course the stress scenarios are themselves an important cyclical macroprudential element, as they are designed to impose more stress—in particular, a larger increase in the unemployment rate— during periods of strong expansion. But a single scenario will not be equally stressful for all firms.
Tharman Shanmugaratnam: Singapore – a widely respected centre of Asian and global finance Keynote address by Mr Tharman Shanmugaratnam, Chairman of the Monetary Authority of Singapore, at the Association of Banks in Singapore (ABS) Annual Dinner, Singapore, 30 June 2015. *  *  *  Chairman and Council Members of the ABS, Ladies and gentlemen, 1. Thank you for inviting me to join you this evening. 2. We meet at a time of renewed uncertainty in global finance. Greece has imposed capital controls and declared a banking holiday to stem a full-blown financial crisis. 3. No one has been able to predict each step in the game of brinkmanship that we have seen over the last few weeks. But the underlying reality of a sharply deteriorating economy in Greece, and the prospect of bankrupt Government, has not been a surprise. It is too early to say if some form of Grexit becomes a reality, but it is a contingency that Eurozone governments and financial institutions have been preparing for. 4. The direct impact of a collapse of the Greek economy is not significant, even in the Eurozone. The ECB and the EU are also likely to take all steps necessary to safeguard the Eurozone financial system in the coming weeks. Markets have hence not shown great panic, with credit spreads widening only slightly in the Eurozone periphery. 5. But there are downside risks we should be mindful of.