The Federal Reserve Bank of New York works to promote sound and well-functioning financial systems and markets through its provision of industry and payment services, advancement of infrastructure reform in key markets and training and educational support to international institutions.
The Outreach and Education function engages, empowers and educates the Second District communities that the Bank serves, especially civic leaders, students, educators, small business owners, policymakers and the general public. It furthers the Bank's commitment to the region by listening to the communities we serve and leveraging our unique attributes to positively impact school and university programs, as well as analysis and research.
The CLASS model is a top-down capital stress testing framework that uses public data, simple econometric models, and auxiliary assumptions to project the effect of macroeconomic scenarios on U.S. banking firms. Through the lens of the model, we find that the total banking system capital shortfall under stressful macroeconomic conditions began to rise four years before the financial crisis, peaking in the fourth quarter of 2008. The capital gap has since fallen sharply, and is now significantly below pre-crisis levels. In the cross-section, banking firms estimated to be most sensitive to macroeconomic conditions also have higher capital ratios, consistent with a “precautionary” view of bank capital, though this behavior is evident only since the crisis. We interpret our results as evidence that the resiliency of the U.S. banking system has improved since the financial crisis, and also as an illustration of the value of stress testing as a macroprudential policy tool.