In my remarks today, I want to focus on one particular post-crisis change, the introduction of supervisory stress testing, as embodied in CCAR and the stress tests required by the DoddFrank Act (DFAST). In my personal view, supervisory stress testing and the CCAR are the most significant and impactful of the many regulatory and supervisory changes implemented following the global financial crisis. The CCAR and stress testing introduced a forward-looking perspective to capital adequacy and capital planning, something that static book-value-based regulatory capital measures lacked. We felt this acutely during the financial crisis, when market values of bank equity plunged while book values evolved only very slowly, based on accounting measures of losses. Aside from the stress-test-based quantitative requirements, the CCAR also requires large complex banks to do systematic capital planning, including developing criteria for when dividends and share repurchases will be made, increased or curtailed. This is an important innovation, as banks were slow to reduce dividends during the financial crisis, even as losses mounted and share prices fell.1 I want to examine supervisory stress testing through the lens of a paper I wrote in 2009 with former colleague Til Schuermann and current colleague Kevin Stiroh, now head of the New York Fed’s Supervision Group.2 That paper looked at the very first set of stress tests conducted by the Federal Reserve and other federal banking supervisors. The Supervisory Capital Assessment Program, or SCAP, was a watershed moment in the financial crisis.
Immediately following Sandy, our Regional and Community Outreach function reached out to all of the affected communities as part of a needs assessment. We asked: “How can the New York Fed best leverage our resources to help our community?” After dozens of conversations with leaders of the community, we determined that pulling together key service providers under one roof would make a useful contribution. Our outreach team organized a free relief clinic in this very building. We brought together a wide variety of government agency representatives and other service providers. I would like to acknowledge what is a long list: Federal Emergency Management Agency (FEMA), the Small Business Administration (SBA), the Office of the New York Attorney General, the New York 2  BIS central bankers’ speeches  State Department of Financial Services, the New York Legal Assistance Group, Staten Island Legal Services, the Legal Aid Society, MFY Legal Services, various bar associations, New York City Department of Small Business Services, Center for New York City Neighborhoods, Neighborhood Housing Services of Staten Island and the Northfield Local Community Development Corporation. I’m proud to say we were able to assist over 150 Staten Islanders, including homeowners, tenants and small business owners. We also heard that it could be challenging to find key recovery information and advice online. So once again, we pulled key resources under one roof – or I should say one URL.