permitting other institutions to move voluntarily to the advanced approaches subject to the same rigorous risk measurement and management requirements as core banks. through the dialogue, the participants were able to discuss the u. s. approach and to compare it with the eu proposal to apply basel ii to all of its banks and investment companies. these different implementation strategies will raise some issues, and that is why the basel committee has created the accord implementation group to coordinate implementation across jurisdictions and work through home - host issues. as noted, issues are not resolved during dialogue discussions ; that is not the purpose of the dialogue. but open communication that fosters understanding can feed back into the decision - making discussions when they are held in other appropriate forums. with respect to basel ii implementation and the dialogue, in my view, the current structure will continue to serve a useful purpose - as implementation issues are identified, the dialogue can be a venue for candid, informal communication. participants can take back to their constituents the results of those discussions and the subject matter experts can determine how best to address issues that are raised or respond to particular questions or concerns. the dialogue has been useful in diffusing tensions over matters that have a direct impact on global firms. this has been especially true with respect to issues under the sarbanes - oxley act, a discussion of which i shall leave to my sec colleague. the dialogue has also been helpful on less high profile matters. through discussions at dialogue meetings, we were able to keep ec staff apprised of developments relating to asset pledge requirements applicable to foreign banking organizations having u. s. offices. for more than forty years, federal and state bank licensing authorities have imposed an asset pledge or capital equivalency deposit requirement on u. s. branches and agencies of international banks, primarily for safety and soundness reasons. this requirement obligated such institutions to hold certain negotiable securities at american custodian banks. in recent years, foreign banks were of the view that such requirements were more onerous than necessary and sought a reduction in the level of assets to be pledged. the matter was brought to the attention of european commission staff who raised it at the dialogue. we were able to inform commission staff of progress being made on this front by state authorities in new york and elsewhere over a two - year period. new york changed its asset pledge requirement in 2003, generally satisfying the concerns of foreign banks. the dialogue was a useful forum to keep commission staff apprised of developments during this

##cipate margin calls during periods of volatility. the holistic review by the financial stability board, in which we participate, could provide important insights into these issues. 12 see financial stability board ( 2020 ), holistic review of the march market turmoil ( basel, switzerland : fsb, november ), https : / / www. fsb. org / wp - content / uploads / p171120 - 2. pdf. - 10 bank capital and liquidity the resilience of the banking sector in response to the covid shock underscores the importance of guarding against erosion of the strong capital and liquidity buffers and riskmanagement, resolution, and stress - testing programs put in place pursuant to the dodd - frank act. banks entered the pandemic with strong capital and liquidity buffers, especially those banks whose size and complexity are systemically important. strong capital and liquidity buffers allowed the banking system to accommodate the unprecedented demand for short - term credit from many businesses that sought to bridge the pandemic - related shortfalls in revenues. banks ’ capital positions initially declined because of this new lending and strong provisioning for loan losses but have since risen above their pre - pandemic levels, reflecting better - than - expected loan performance and a reduction in credit provision as well as caps on dividends and restrictions on share repurchases in the past several quarters. strong capital and liquidity positions will remain important, as banks still face significant challenges — including an environment of higher - than - normal uncertainty. for instance, some sectors of commercial real estate loans and commercial and industrial loans are more vulnerable than before the crisis. similarly, net interest margins could remain in the lower part of their historical ranges for some time. although losses and delinquency rates on bank loans are currently low, performance could deteriorate as borrowers exit forbearance, with particularly hard - hit businesses and households facing arrears on rent and mortgage payments. 13 recent developments have been encouraging, but downside risks remain, which could delay recovery and lead to higher losses. according to the senior loan officer opinion survey on bank lending practices, banks expect demand to strengthen and loan performance to deteriorate for most loan categories over 2021, with the exception of c & i loans to large and middle - market firms. the survey is available on the board ’ s website at https : / / www. federalreserve. gov / data /