The barometer shows that over the last several years banks had become more resilient to stress, with reduction in “consumption” of capital under supervisory stress tests, with capital consumption being the difference between the actual level of capital before the stress test and the minimum level of capital during a stress scenario.

Additionally, banks have been building capital cushions to absorb losses and improving the quality of portfolios, thus reducing the likelihood of losses. Since 2009-Q3, there is a significant increase in CET1 capital ratio as well as other measures of capital, an increase in riskless assets, and a reduction in non-performing loans and charge-offs.

The last indicator in the Barometer shows changes in systemic risk. Systemic risk is captured by SRISK which measures each bank’s contribution to capital shortfall in a hypothetical future crisis (Acharya, Engle, and Richardson, “Capital Shortfall: A New Approach to Ranking and Regulating Systemic Risks,” American Economic Review, 2012, Vol. 102(3), pp. 59-64). Relative to 2009, there is a significant decline in systemic risk, with SRISK declining by 70%. The decline in systemic risk is consistent with other indicators in the Barometer that show a rapid accumulation of capital and improvements in the quality of the portfolios. Each “diamond” in the Barometer indicates a percentage change in the specific indicator between 2009-Q3 and 2014-Q2. We select 2009-Q3 as the starting point because of the relatively complete data for most banks and indicators. The bars around the diamonds indicate statistical uncertainty. Bars that cross the dashed “0%” vertical line suggest that the change in the indicator is not statistically different from zero while bars that are fully on either side of the “0%” line indicate statistically significant changes.