The CCAR is a significant supervisory innovation intended to ensure that large, complex bank holding companies have robust internal capital planning processes and sufficient capital to withstand stressed economic conditions and to continue to be viable financial intermediaries. Importantly, the CCAR takes a forward-looking perspective in assessing a bank’s capital adequacy, including ensuring that its internal stress testing processes address its unique vulnerabilities and exposures. The CCAR should push banks to proactively manage their capital so as to be well prepared for the type of market stresses that could cause significant declines in income and capital. Other steps could be taken to complement the CCAR. One approach would be to implement a long-term debt requirement in a way that further enhances market discipline and provides incentives for regulators to promptly intervene if necessary. Another might be to structure compensation practices to strengthen senior bank managers’ incentives to proactively manage risk. For example, imagine how incentives would change if a significant portion of senior bank management’s compensation each year were deferred to be available to cover future capital losses. I suspect that over time this would meaningfully alter management’s risk tolerance. Also, in addition to the quantity of the deferred compensation, the form it takes could also affect incentives. If most of the deferred compensation were in the form of debt rather than equity, I suspect this would also affect management’s risk tolerance and the appetite to cut dividend payments, reduce share repurchases or raise more capital more promptly when the firm began to become stressed.

It would be rather strange if such differentiation were to make it more difficult for us to 3/5  BIS central bankers' speeches  provide liquidity to EU than to third-country CCPs. This does not mean that we would seek to substitute our judgement for that of EU or thirdcountry CCP supervisors: their primary responsibility to guarantee the resilience of CCPs, and more broadly the stability of our financial system, cannot and should not be questioned. But we need a set of safeguards so that our concerns are appropriately taken into account in the regulation and supervision of CCPs. I see three such safeguards: The first is adequate information on the operation and risk management of CCPs clearing in euro, and the capacity to assess how they would fare in times of market stress, including through stress testing. A second is meaningful involvement in the supervisory process, to ascertain that CCPs’ compliance with prudential and operational requirements provides sufficient guarantees from our perspective as a central bank. And third, we should be able to adopt requirements to address critical central bank concerns. For instance, it would be our prerogative to determine when CCPs should hold central bank accounts for deposit and settlement purposes, and to require targeted enhancements to CCP liquidity risk management when necessary in exceptional market environments. Everyone should be clear that our ability to carry out our mandate and, where appropriate, to provide liquidity to CCPs, relies on enshrining these safeguards in our regulatory framework.