In particular, the definitions of capital must not be watered down and risk-weighted asset calculations must be done in a consistent manner around the world. An identical portfolio of assets should generate a comparable amount of risk-weighted assets regardless of the country in which the bank’s home office is domiciled. With respect to standards for financial market infrastructures, the Principles for Financial Market Infrastructures, which were published last month, are an important step forward. These principles establish the minimum standard for important FMIs around the world. But the establishment of these standards is just the first step. National authorities now need to ensure that their domestic regulatory regimes embody these principles, and these national regimes have to be credibly assessed for ongoing conformance to the new standards. Global standards for financial market infrastructures are necessary if we are to build a safe global system of central counterparty clearinghouse (CCPs) infrastructures though which to clear standardized over-the-counter derivatives trades around the world. For national regulators to be comfortable with such an arrangement there has to be an appropriate level of information exchange and cooperative oversight, and the Principles explicitly mandate this. Although cross-border information exchange and cooperative oversight are certainly not new – the coordination of currency settlement around the world through CLS is one important example – the model has to be further developed and adopted more broadly across a wider range of important global financial market infrastructures.

As always, my remarks today reflect my own views and not necessarily those of the Federal Open Market Committee or the Federal Reserve System. We live in a globalized economy in which the flows of products, capital, and ideas across borders have led to significant economic gains for literally hundreds of millions of people around the world. Thus, there is a strong public interest in ensuring that this global economic integration is supported by a coherent set of coordinated national macroeconomic policies and a harmonized international regulatory regime. This applies to the policy actions we undertake to reduce economic imbalances as well as to the regulations we develop to address the vulnerabilities in our financial system that were exposed by the crisis. The better we are able to develop cooperative global solutions to these types of issues, the more successful we will be in creating a sounder and more sustainable global economy and financial system. It is clear that there were important imbalances in both economic and financial activity in the years preceding the financial crisis. For example, in the U.S., too much of economic activity was based on an unsustainable housing boom. The turmoil in financial markets that was unleashed when the boom collapsed subsequently forced the U.S. and other countries to undergo significant adjustments. These adjustments were often sudden. They transmitted large shocks across the global economy. These shocks, in turn, necessitated other adjustments in trade, investment, and in financial markets elsewhere.