all sizes and represents a baseline supervisory goal. i should emphasize that resiliency is not the ultimate aim, but rather a means to broader policy objectives. a resilient firm, for example, is more likely to provide a sustainable flow of financial services — broadly defined to include credit intermediation, payments, and risk transfer — through the cycle and across a range of possible macroeconomic outcomes ; a resilient firm is less likely to harm the economy or consumers through excessive risk - taking ; and a resilient firm is less likely to put taxpayer funds at risk. that is why resilience of financial institutions is valued. 1 / 7 bis central bankers'speeches the supervisory program for the largest banks implemented since the financial crisis builds on that foundation and explicitly acknowledges the potential impact that distress at a large bank could have on financial markets or the economy. this approach to large bank supervision has been codified in supervision and regulation letter 12 – 17, or sr 12 – 17. 2 this framework expresses two complementary goals for the federal reserve ’ s program for large bank supervision : ( 1 ) enhanced resiliency of the firm to lower the probability of failure or inability to serve as an intermediary and ( 2 ) reduced impact on the financial system or economy in the event failure or material weakness does in fact occur. to analysts of credit, this will sound familiar because it is essentially a probability of default / loss given default or pd / lgd framework. the key elements of enhanced resiliency, or lower pd, in this framework include capital, liquidity, corporate governance, management of core businesses, and recovery planning. a reduced impact of distress, or lower lgd, depends on effective management of critical operations, support for banking offices, and strong resolution planning. as an aside, the implementation of enhanced standards for the largest, most systemically important financial firms reflects a core tenet of the federal reserve ’ s supervisory program, namely that supervisory expectations should be tailored to the risks that individual institutions face and the potential impact that distress might have on the broader financial markets or economy. chair yellen recently discussed this topic 3 and the recent rule that removes large, non - complex firms from the qualitative assessment of the comprehensive capital analysis and review ( ccar ) is a recent example. 4 this tailoring principle drives efforts to mitigate risks to financial stability, while minimizing the collective burden on financial institutions, particularly for community and mid - sized banks, and

reference rates were intended to capture on a daily basis borrowing costs along each currency - maturity combination based on the experience of the submitting banks. the actual process for fixing libor each day is quite straightforward. each morning the submitters from each contributing bank answer the following hypothetical question : “ at what rate could you borrow funds, were you to do so by asking for and then accepting interbank offers at a reasonable market size just prior to 11 a. m.? ” the transmitted submissions are ordered by rate for each currency and maturity pair. the ordered rates for u. s. dollar libor, for example, are then trimmed by generally dropping the top and bottom 25 percent of submissions to remove any influence of outliers. the average of the remaining individual submissions is calculated and then posted. prior to the recent reforms, all submissions were immediately made public. the aim of the libor - setting process has been to create a set of reference rates that would be credible and would generate robust measures of bank funding costs across a wide range of market conditions. the credibility was based on the borrowing experience from the submitting banks represented through their submitters – those individuals responsible for actually submitting an answer each day to the administrator. the potential conflicts of interest between the submitters and traders within the bank were typically handled through internal policies such as the presence of information barriers that were intended to prevent sensitive information from flowing between the traders and libor submitters. the robustness to market conditions would be maintained even in periods of market stress or a lack of transactions by the reliance on the hypothetical question instead of the use of actual transaction data. that is, even if during stressed times when trading became sporadic in a particular currency - maturity pair, all submitters could still answer the question even if their bank did not happen to engage in any trades on that particular day in that particular pairing. this ensured a large sample size even during stressed market conditions. the trimming of the sample helped to minimize the influence of any outlier submission, but also limited the ability for any one submitting bank to influence the posted rate. see mcconnell, “ systemic operational risk : the libor manipulation scandal. ” journal of operational risk, 8 ( 3 ) : 59 – 99. bis central bankers ’ speeches as is clear from the hypothetical question, libor is meant to capture a bank ’ s cost of unsecured borrowing. this means that the reference rate will reflect not only a risk - free component, but also counterparty