to debt, equity is a more expensive source of funding to a bank given the structure of our laws and markets, the presence of deposit insurance and other government support, and other factors. see, e. g., franco modigliani and merton h. miller, " the cost of capital, corporation finance and the theory of investment, " the american economic review 48 ( june 1958 ) : 261 – 297, and ron j. feldman, gary h. stern, and paul a. volcker, too big to fail : the hazards of bank bailouts ( washington : brookings institution press, 2009 ). 4 the g - sib surcharge is an additional layer of capital just for the g - sibs, and it is measured on several factors of each g - sib, specific to their individual risks. 5 to the extent that such a firm has large trading operations, it would also be subject to the revised market risk framework. 6 with regard to the adjustments to address window dressing and cliff effects, these will have a one - time impact on banks that carefully manage their operations to lower surcharge buckets, but should improve the efficiency and risk - sensitivity of the measure over time. 7 the re - proposal would update the method 2 coefficients to reflect changes from 2015 until the present using a methodology that is consistent with the board's original calibration in 2015. specifically, the supplemental proposal would update the method 2 coefficients for each of the systemic indicators for the size, interconnectedness, complexity, and cross - jurisdictional activity categories from 2015 until the present using the most recent available two - year average of aggregate global indicator amounts and the corresponding three - year average of euro / u. s. dollar exchange rates. going forward, it would also include a mechanism to annually adjust the method 2 coefficients for each of the systemic indicators for the size, interconnectedness, complexity, and 7 / 8 bis - central bankers'speeches cross - jurisdictional activity categories based on u. s. inflation and real economic growth. this mechanism would use a three - year moving average of annual nominal u. s. gross domestic product ( gdp ) growth to adjust these coefficients on an annual basis. 8 / 8 bis - central bankers'speeches

current account adjustments. the united kingdom, however, had significant adjustment difficulties in its early postwar years, as did, more recently, mexico, thailand, korea, russia, brazil, and argentina, to name just a few. can market forces incrementally defuse a worrisome buildup in a nation's current account deficit and net external debt before a crisis more abruptly does so? the answer seems to lie with the degree of flexibility in both domestic and international markets. in domestic economies that approach full flexibility, imbalances are likely to be adjusted well before they become potentially destabilizing. in a similarly flexible world economy, as debt projections rise, product and equity prices, interest rates, and exchange rates could change, presumably to reestablish global balance. the experience over the past two centuries of trade and finance among the individual states that make up the united states comes close to that paradigm of flexibility even though exchange rates among the states have been fixed. although we have scant data on cross - border transactions among the separate states, anecdotal evidence suggests that over the decades significant apparent imbalances have been resolved without precipitating interstate balance of payments crises. the dispersion of unemployment rates among the states, one measure of imbalances, spikes during periods of economic stress but rapidly returns to modest levels, reflecting a high degree of adjustment flexibility. that flexibility is even more apparent in regional money markets, where interest rates that presumably reflect differential imbalances in states'current accounts and hence cross - border borrowing requirements have, in recent years, exhibited very little interstate dispersion. this observation suggests either negligible cross - state - border imbalances, an unlikely occurrence given the pattern of state unemployment dispersion, or more likely very rapid financial adjustments. * * * we may not be able to usefully determine at what point foreign accumulation of net claims on the united states will slow or even reverse, but it is evident that the greater the degree of international flexibility, the less the risk of a crisis. 7 the experience of the united states over the past three years is caroline freund, “ current account adjustment in industrialized countries, ” board of governors of the federal reserve system, international finance discussion paper no. 692, december 2000. although increased flexibility apparently promotes resolution of current account imbalances without significant disruption, it may also allow larger deficits to emerge before markets are required to address them. illust