, some have argued that the bifurcated application of basel ii within the united states could allow domestic banks that adopt the framework both lower capital charges on certain activities and lower overall regulatory capital requirements compared with other domestic banks. lower regulatory capital charges would, it has been argued, translate into a cost advantage for adopters that would place non - adopters at a competitive disadvantage. in addition, some fear that adopters would use any newly created excess regulatory capital to acquire smaller banks. it is an important principle that differences in capital rules among institutions should not distort financial markets or create artificial competitive advantages for any particular class of banks. with this principle in mind, the federal reserve has conducted research on the potential competitive impacts of basel ii, and all of the u. s. banking agencies have received comments from many sources. based on this information, the banking agencies have announced their intention to propose revisions to the existing basel i capital standards that would aim to mitigate competitive inequities. proposals should be released in the not - too - distant future, and i urge interested parties to give us specific advice regarding what else we may need to do to reduce any unintended competitive consequences of basel ii. the second competitive equity concern relates to the international consistency with which basel ii will be implemented. inconsistency in international standards of implementation and enforcement, it is sometimes said, will put internationally active u. s. banks at a competitive disadvantage and may also hurt purely domestic u. s. banks vis - a - vis the u. s. subsidiaries of foreign banks. all bank regulators recognize that achieving international consistency will be a challenge. however, this problem is not really new. companies operating across national borders, and their supervisors, are familiar with the challenges of complying with sometimes conflicting legal and regulatory requirements. still, we recognize that some international implementation issues will be more complex than those we currently face. u. s. regulators are working hard through the basel committee and with individual firms and national supervisors to address international implementation issues. a great deal more effort and cooperation will be needed, but i believe that, as in the past, we can craft an acceptable set of agreements and work out means of resolving future issues. the final concern i will discuss is the worry that basel ii could lead to a substantial decline in minimum regulatory capital requirements at adopting banks. i emphasized earlier that, for supervisors, an overarching lesson from the banking and thrift crises of the late - 1980s and early

ben s bernanke : current economic and financial conditions speech by mr ben s bernanke, chairman of the board of governors of the us federal reserve system, at the national association for business economics 50th annual meeting, washington dc, 7 october 2008. * * * good afternoon. i am pleased to have once again the opportunity to address the national association for business economics. my remarks today will focus on recent developments in the financial sector and the economy and on the challenges we face. as you know, financial systems in the united states and in much of the rest of the world are under extraordinary stress, particularly the credit and money markets. the losses suffered by many banks and nonbank financial firms have both constrained their ability to lend and reduced the willingness of other market participants to deal with them. great uncertainty about the values of financial assets, particularly more complex and opaque assets, has made investors extremely reluctant to bear credit risk, resulting in further declines in asset prices and a drying up of liquidity in a number of funding markets. even secured funding has become expensive and difficult to obtain, as lenders worry about their ability to sell collateral in illiquid markets in the event of default. in addition, many securitization markets, such as the secondary market for private - label mortgage - backed securities, remain closed or impaired. considerable experience in both industrialized and emerging economies has shown that severe financial instability, together with the associated declines in asset prices and disruptions in credit markets, can take a heavy toll on the broader economy if left unchecked. for this reason, the federal reserve, the treasury, and other agencies are committed to restoring market stability and are working assiduously to ensure that the financial system is able to perform its critical economic functions. recent actions by the congress have given the treasury new tools and resources to address the stressed conditions of our financial markets and institutions. the federal reserve has also been granted a new authority, the ability to pay interest on bank reserves, which will allow us to expand our lending as needed to support the system while better managing the federal funds rate. these tools will provide important additional support for the government's efforts to strengthen financial markets and the economy. let me briefly review recent financial developments. on the heels of nearly a year of stress in credit markets, investors'and creditors'concerns about funding and credit risks at financial firms intensified over the summer as mortgage - related assets deteriorated further, economic growth slowed, and uncertainty about the economic outlook increased