Capital is critical to a bank’s ability to absorb losses and maintain adequate liquidity. The financial crisis illustrated that the market’s confidence in the capitalization and overall financial strength of a bank can erode rapidly with changes in economic and financial conditions. This not only imperils the bank’s viability, but the broader financial system as well. For this reason, the Federal Reserve has made assessments of capital planning and analysis of capital adequacy on a post stress basis a cornerstone of its supervision of the largest and most complex financial institutions.
To fulfill its supervisory objectives and reorient its supervisory program in response to lessons learned from the financial crisis, the Federal Reserve has created new frameworks and programs for the supervision of the largest and most complex financial institutions.
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