##fi surcharge could best be satisfied by requiring sifis to hold additional common equity above and beyond the basel 7 percent tier i common standard. the move toward a tougher capital and liquidity regime undoubtedly receives the greatest attention in terms of the measures being implemented to make large banks safer. however, there also are a number of other important changes being made to supervisory practices in the united states and elsewhere. one noteworthy example is the more widespread use of horizontal stress tests to ensure that banks have adequate capital. this is a very important development, because it makes the evaluation of capital more forward - looking. the issue is not just how much regulatory capital a bank has currently but how that bank ’ s capital level is likely to evolve over time in adverse economic circumstances. in the united states, another important change is that we are refocusing our supervisory practices to identify structural weaknesses and to push firm managements to remedy their shortcomings relative to “ best practice ” standards. horizontal reviews across the large banks are being undertaken to identify firm - specific deficiencies. at the federal reserve, we are placing greater emphasis on understanding banking organizations ’ business models and strategies – in other words, better understanding the specific markets and activities from which the banking organizations make money over time and the nature of the risks they take in this process. strong risk management practices within organizations are particularly important, as risk managers must be empowered to stand up to those in the front office and prevent activities and practices that create risks or incentives that are incompatible with bank safety and soundness. compensation practices are being reviewed to ensure that the incentives created by the compensation regime are consistent with a banking organization remaining in sound financial condition. another key supervisory innovation has been the more extensive supervisory engagement on the processes that banking organizations use to assess and plan for their capital needs. recently, the federal reserve completed a comprehensive capital analysis and review ( ccar ) program for the 19 largest u. s. bank holding companies. the purpose of the ccar process was to assess the way these institutions allocate capital over time against the risks they run, including how robust that allocation is to changes in the economic and financial environment. as part of this exercise, banking organizations had to show how their capital would hold up under a stress environment specified by the federal reserve, as well as how they expected their activities and capital positions to be affected by changes such as basel iii. the ccar built on lessons learned during the crisis about the importance of taking a forward - looking

outstanding. first, we do need to adopt an additional capital requirement on large global systemically important financial institutions. we need this to reduce the risk of failure of such institutions to very low levels because we do not yet have the tools in place to resolve these institutions on a cross - border basis in a non - disruptive manner. we also need to do this because such institutions – by being perceived to be too big to fail – obtain a funding advantage, which higher capital charges can help offset. without such a requirement, large banks can gain a competitive advantage just through their size. second, as discussed earlier, we have much more to do to ensure that we have a relatively level playing field. we need that to discourage regulatory arbitrage and beggar - thy - neighbor policies that might benefit narrow national constituencies at the expense of global financial stability. third, we need closer cooperation among regulators. while regulators have successfully worked toward a much tougher regulatory regime for capital and liquidity, there are still huge opportunities for further progress. for example, regulators need to adopt more far - reaching protocols that allow for greater sharing of supervisory information on a cross - border basis to facilitate more effective supervision. but, this needs to be done carefully, so that proprietary business information is protected. currently, regulators generally do not have access to the necessary information to fully assess the condition of foreign banks that operate within their borders. they have supervisory information about the activities and state of condition of the foreign bank branches and subsidiaries within their borders, but do not always have good access to information about the parent company or what the banking entity looks like on a consolidated basis. this has long been a difficult issue, though efforts are underway to find ways to enhance information - sharing. similarly, protocols need to be developed to share regulatory information about systemically important financial market infrastructures that operate on a cross - border basis. access to the trade records of otc derivatives activity that will be recorded in trade repositories also needs to be made available to be shared among regulators. fourth, we need greater clarity concerning the responsibilities of the home versus the host country, especially when a bank encounters problems. fifth, we need to work out how emergency liquidity should be provided on a cross - border basis. if a major financial market utility in london, for example, needs dollar liquidity to stay in operation, who will provide in it? who will bear the risk and on what terms and conditions? the political unrest in the middle east