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stable funding that is tailored to the liquidity risk of a bank ’ s assets and liabilities, based on a one - year time horizon. the nsfr creates an incentive for banks to extend the maturity of their funding, making them more resilient to market stress. to offset the risks of the short - term wholesale funding structures that proved so dangerous in the recent crisis, the nsfr requires more stable funding for shortterm loans to financial firms. it is important to note how liquidity requirements also affect the capital needed by a bank, as can be illustrated by a simple, if admittedly improbable, example. assume two banks with exactly the same assets and the same amount of capital. one funds those assets entirely through insured ( sticky ) deposits and longer - term debt, while the other funds its assets entirely through short - term uninsured deposits and repo borrowing. assume now that an external shock reduces the value of the assets dramatically, with lingering uncertainty as to whether the value will continue to drop. it is readily apparent that the two large banks face very different risks, since the second bank ’ s funding will at best become more expensive and at worst decline or disappear. a sound regulatory regime will align the riskiness of the two banks more closely, by requiring the second bank to change its funding profile, increase its capital, or some combination of the two. in fact, the lcr and nsfr would require more stability in funding at my second hypothetical bank, while one of the factors used to calculate the capital surcharge applicable to the largest banks is its relative reliance on runnable funding. i will not go into detail in explaining a third key factor of our post - crisis regulatory regime - - the requirement for rigorous risk management at large banks. but a brief example should make the point. during the height of the crisis in the winter of 2009, as we were conducting the first stress test, we found that some of the largest banks were literally unable to determine in any reasonable time their aggregate exposures to particular counterparties and business lines across their varied operations. that deficiency made it easier to understand how they could have gotten themselves in such trouble. because of the supervisory expectations for risk management in our annual comprehensive capital analysis and review ( ccar ) exercise, the information and risk management systems of all banks have improved substantially, though work remains to be done at some of the largest banks. a fourth key element of the post - crisis regulatory regime is to