the first challenge posed by the crisis was to traditional, microprudential regulation, which focuses on the safety and soundness of each prudentially regulated firm. not all central banks have microprudential regulatory authority, of course, and – as in the united states – those that do sometimes share it with other agencies. but the shortcomings of pre - crisis regulatory regimes have been of concern to all central banks. most notably, capital requirements for banking organizations, particularly the large ones that might be regarded as too - big - to - fail, simply were not strong enough. risk - weights were too low for certain traded assets that had proliferated as credit and capital markets integrated more thoroughly. in some cases, the arbitrage opportunities presented by existing capital requirements were an incentive for securitization and other capital markets activities. the exposures created by off - balance - sheet activities such as structured investment vehicles ( sivs ) were badly underweighted. minimum capital ratios were not high enough and, in meeting even those inadequate requirements, firms were allowed to count liabilities that did not really provide the ability to absorb losses and still maintain the firms as viable, functioning intermediaries. there has already been a substantial response to this challenge. with the support of the federal reserve and other u. s. bank regulators, the basel committee on banking supervision has strengthened capital requirements by raising risk - weightings for traded assets and improved the quality of loss - absorbing capital through a new minimum common equity ratio. the committee also has created a capital conservation buffer and introduced an international leverage ratio. these basel 2. 5 and basel iii reforms either have been, or soon will be, implemented in the united states and most other countries that are home to internationally active banking firms. also, the basel committee has just recently adopted the liquidity coverage ratio ( lcr ), a first step in addressing liquidity problems. in the united states, some important additional steps have been taken. beginning at the peak of the crisis, the federal reserve has conducted stress tests of large banking organizations, making capital requirements more forward - looking by estimating the effect of an adverse economic scenario on firm capital levels in a manner less dependent on firms ’ internal risk - measurement infrastructure. and the provision of the dodd - frank act popularly known as the collins amendment ensures that banking organizations cannot use models - based approaches to reduce their minimum capital below generally applicable, more standardized risk - based ratios. bis central bankers ’ speeches

it is equally obvious that the other two sets of policy changes are quite closely related to the international agenda. more than in most other areas, the financial sphere suffers from a basic lack of congruence between the authority to regulate and the object of regulation. thus we have a significantly internationalized financial system, in which shocks are quickly transmitted across borders, but a nationally - based structure of regulation. within countries, responsibilities may be divided between prudential regulators and market regulators, among regulators with similar mandates, or both. central banks may have exclusive prudential authority, share it with other agencies, or have none at all. international arrangements both reflect, and try to compensate for, this web of divided and overlapping domestic authority. thus there are sectoral standards setters like the basel committee, the international organization of securities commissions ( iosco ), and the international association of insurance supervisors ( iais ) on the one hand, but also broader groupings such as the group of twenty, the financial stability board ( fsb ), and the international monetary fund on the other. in addition, under the umbrella of the international home of central bankers, the bank for international settlements, numerous other committees work across fields also covered by one or more of the groups i have just mentioned. there are some obvious weaknesses with such an assortment of international arrangements, notably the difficulty of coordinating initiatives where more than one group is working on an issue. this kind of coordination challenge can be further complicated by the participation in international discussions of various national officials without domestic authority in a particular area. the sheer proliferation of international arrangements, each with its own staff, has at times also led to a proliferation of studies and initiatives that become burdensome to the national regulators and supervisors who have been overtaxed at home since the onset of the crisis and ensuing domestic reform efforts. balance sheets matter, " a research symposium sponsored by the federal reserve bank of st. louis, held in st. louis, mo., february 7. bis central bankers ’ speeches yet there are also some strengths derived from the crowded international field of organizations and committees. one such virtue is that issues not falling squarely within the remit of a particular kind of standards setter can nonetheless be dealt with internationally. this, in fact, has been the experience with the ongoing international effort to agree on minimum margin requirements for derivatives that are not centrally cleared. another is that different perspectives are frequently brought to bear on a single set of problems. at some point, it