##mediation requirements for foreign banks under sections 165 and 166 of the dodd - frank act. the proposal is generally consistent with the set of standards previously proposed for large u. s. bank holding companies. the proposal generally would require foreign banks with a large u. s. presence to organize their u. s. subsidiaries under a single intermediate holding company that would serve as a platform for consistent supervision and regulation. the u. s. intermediate holding companies of foreign banks would be subject to the same risk - based capital and leverage requirements as u. s. bank holding companies. in addition, u. s. intermediate holding companies and the u. s. branches and agencies of foreign banks with a large u. s. presence would be required to meet liquidity requirements similar to those applicable to large u. s. bank holding companies. the proposals respond to fundamental changes in the scope and scale of foreign bank activities in the united states in the last fifteen years. they would increase the resiliency and resolvability of the u. s. operations of foreign banks, help protect u. s. financial stability, and promote competitive equity for all large banking firms operating in the united states. the comment period for this proposal closes at the end of march. priorities for 2013 the federal reserve ’ s supervisory and regulatory program in 2013 will concentrate on four tasks : ( 1 ) continuing key dodd - frank act and basel iii regulatory implementation work ; ( 2 ) further developing systematic supervision of large banking firms ; ( 3 ) improving the resolvability of large banking firms ; and ( 4 ) reducing systemic risk in the shadow banking system. carrying forward the key dodd - frank act and basel iii regulatory implementation work capital, liquidity, and other prudential requirements for large banking firms. given the centrality of strong capital standards, a top priority this year will be to update the bank regulatory capital framework with a final rule implementing basel iii and the updated rules for standardized risk - weighted capital requirements. the banking agencies have received more than 2, 000 comments on the basel iii capital proposal. many of the comments have been directed at certain features of the proposed rule considered especially troubling by community and smaller regional banks, such as the new standardized risk weights for mortgages and the treatment of unrealized gains and losses on certain debt securities. these criticisms underscore the difficulty in fashioning standardized requirements applicable to all banks that balance risk sensitivity with the need to avoid excessive complexity. here, though, i

of risks within the current basel accord has distorted risk - management practices and encouraged massive regulatory capital arbitrage. that is, our rules have induced bank transactions that have the effect of reducing regulatory capital requirements more than they reduce a bank ’ s risk position. consequently, the fundamental credibility of regulatory capital standards as a tool for prudential oversight and prompt corrective action at the largest banking organizations has been seriously undermined. in reflection of the considerable differences among banks that i mentioned earlier, us supervisors are developing proposals for a multi - track approach to address modifications to the regulatory capital rules, and this approach has been incorporated in the basel consultative document. within the united states, consideration is being given to a standardized capital treatment involving a quite simple regulatory capital ratio that might become applicable to the vast majority of institutions that are not internationally active. for another group of banks, change might involve such modest refinements to current capital requirements as closing certain loopholes and basing some risk - weights on available external credit ratings. for those comparatively few banking organizations whose scale, complexity and diversity warrant a more sophisticated approach to capital adequacy, the basel committee has proposed another track that, at least initially, would seek to link regulatory capital requirements to the banks ’ internal risk ratings that i discussed earlier. under this approach, the risk - weight assigned to a particular credit position would be based on the internal risk rating assigned by the bank holding that instrument. regulatory staffs in the united states and other countries are currently attempting to work out the basic architecture of such an approach. critical issues include how to validate banks ’ internal risk ratings and how to link risk - weights to these internal ratings so as to ensure economically meaningful and reasonably consistent capital treatment of similar risks across banks. this is an extremely difficult undertaking, and its success will require unprecedented collaboration between – and among – supervisors and the banking industry. the framework it is, i believe, important to reiterate my earlier comment that bank supervision and regulation – especially capital regulation – are necessarily dynamic and evolutionary. we are striving for a framework whose underlying goals and broad strategies can remain relatively fixed, but within which changes in application can be made as both bankers and supervisors learn more, as banking practices change, and as individual banks grow and change their operations and risk - control techniques. operationally, this means that we should not view innovations in supervision and regulation as one - off events. rather, the underlying framework needs to be flexible and to embody a