Financial institutions must be well-managed. Governance structures need to be in place to establish the appropriate decision-making processes, behaviors and incentives within these organizations. •  And, third, complexity. Financial institutions must become less complex. This objective speaks to the need to reduce the level of interconnectedness among large financial firms and to ensure that there are credible mechanisms for resolving even the largest firms without causing systemic disruption across the financial system. BIS central bankers’ speeches  1  Resiliency Much has been said about the U.S. and international set of regulatory reforms aimed at making global banking organizations more resilient – particularly in the areas of capital and liquidity. The importance of robust capital requirements for financial stability and the serious shortcomings of the pre-crisis regulatory capital regime have been well documented. A lot of work has been done on the capital front through a range of both domestic and international efforts. These efforts have addressed – in most cases – both the quantitative and qualitative elements of capital, and have also addressed the important management processes around capital. The Basel standards – and resulting U.S. regulation – address both the quantity and quality of capital and raise the bar on both elements for large firms. As well, the new capital rules will also require a capital buffer that increases with a firm’s size, complexity, interconnectedness and global footprint. Implementation of these new standards should significantly increase the safety and soundness of the financial system.

All of these changes have been designed to achieve a stronger, and more stable, financial system. I think it’s fair to say that the financial crisis made it very clear to all of us that stability was about more than just banks. It is also about the safety and soundness of a variety of interconnected – and oftentimes large – financial firms, regardless of charter or organizational type. Post-crisis, we have a much keener appreciation of how financial stability is dependent on both strong financial institutions and on the soundness of the connections and linkages between and across firms, whether those connections are other firms, financial utilities, or even the phone company. Recognizing these connections, the Dodd-Frank Act expanded the Federal Reserve’s authority for supervision. We now supervise a broader range of financial institutions than we did pre-crisis, like insurance companies, savings and loan holding companies and some market utilities. In the remainder of my remarks, I will discuss both the progress made and the remaining challenges for the firms we supervise in the context of three key overarching principles of our supervisory framework: •  First, resiliency. Financial institutions must be resilient to shocks. Significant efforts have been undertaken internationally and domestically to reduce the likelihood that a large, global bank ever reaches the point where it is at risk of failure. Resiliency is also critical for financial market utilities. Those organizations must have failsafes in place to ensure the smooth functioning of the critical operations they provide. •  Second, management.