gsib leverage surcharges to further bolster the regulatory capital regime for the most systemic u. s. banking firms, the federal reserve and the other u. s. banking agencies have proposed to strengthen the internationally agreed - upon basel iii leverage ratio as applied to u. s. gsibs. this proposal would require u. s. gsibs to maintain a tier 1 capital buffer of at least 2 percent above the minimum basel iii supplementary leverage ratio of 3 percent, for a total of 5 percent. in light of the significantly higher risk - based capital rules for gsibs under basel iii, imposing a stricter leverage requirement on these firms is appropriate to help ensure that the leverage ratio remains a relevant backstop for these firms. and we have calibrated the proposed gsib leverage surcharge thresholds to raise the leverage standards for these firms by an amount that is roughly commensurate with the basel iii increase in the risk - based capital thresholds for these firms. we expect to finalize this proposal in the coming months. we also intend to incorporate in the united states the revisions to the basel iii leverage ratio recently agreed to by the basel committee. these changes would strengthen the ratio in a number of ways, including by introducing a much stricter treatment of credit derivatives. resolvability of gsibs our enhanced regulation of gsibs also includes efforts to improve their resolvability. the federal reserve ’ s resolvability efforts include work with the federal deposit insurance corporation ( fdic ) to improve the bankruptcy resolution planning of large banking firms and work to assist the fdic in making large banking firms more resolvable under the orderly liquidation authority ( ola ) of the dodd - frank act. the federal reserve is consulting with the fdic on a proposal that would require the largest, most complex u. s. banking firms to maintain a minimum amount of long - term unsecured debt outstanding at the holding company level. while minimum capital requirements are designed to cover losses up to a certain statistical probability, in the event that the equity of a financial firm is wiped out, successful resolution without taxpayer assistance would be most effectively accomplished if a firm has sufficient long - term, unsecured debt to absorb additional losses and to recapitalize the business transferred to a bis central bankers ’ speeches bridge operating company. the presence of debt explicitly identified for possible bail - in on a “ gone concern ” basis should help other creditors clarify their positions

will focus on a piece of recent research that i like very much and which has already received much attention at this conference : dale henderson ’ s paper with christopher erceg and andrew levin ( 2003 ). we have learned a great deal in recent years about the effects of monetary policy in dynamic, stochastic, sticky - price models, with michael woodford ’ s recent book ( woodford, 2003 ) perhaps best representing the state of the art. this line of research is potentially of great importance to applied macro modelers, because it addresses areas in which some may feel that our current policy models need to be strengthened, notably the treatment of expectations, the specification of model dynamics, and the relationship of the economic structure to the form of the policy rule. however, naturally enough, the earliest models in this genre have tended to be highly simplified representations of the economy, only loosely matched to the data. like the models themselves, the optimal policy rules derived in the models are often unrealistically simple. for example, in some of these models, strict inflation targeting - a policy of keeping inflation at zero at all times - is the optimal policy. to make these models relevant for applied policy analysis, the natural next step is to add new frictions and more complex dynamics to the benchmark models. the erceg - henderson - levin ( ehl ) paper explores the implications for monetary policy of a plausible complication, the inclusion in the model of nominal wage stickiness as well as price stickiness. as was discussed yesterday, this relatively simple addition makes an important qualitative difference in the policy results. specifically, in the ehl model, monetary policy can no longer achieve a fully optimal outcome but instead faces tradeoffs among its objectives. because the optimal rule in their model is relatively complex and depends on model parameters and shocks, ehl use model simulations to examine the performance of some simple policy rules. interestingly, they find that relatively simple policy strategies can achieve results close to the optimum. the contribution of the ehl paper goes beyond the specific findings ; equally important is the direction that this work sets for the collective research program. erceg, henderson, and levin have shown by example that incorporating additional, realistic frictions into the basic new - keynesian model changes both the behavior of the model and the nature of the optimal policy rule in nontrivial ways. the papers at this conference by canzoneri, cumby, and diba ( 2004 ) and by