or in different market conditions. • capital ratios don ’ t incorporate the impact on a firm ’ s ability to generate revenues during stress periods – and thus don ’ t indicate a firm ’ s ability to rebuild capital as necessary. • so, clearly, stronger capital standards need to be combined with a better ability to anticipate the future – to incorporate a more forward - looking element into assessing the financial strength of a firm. thus, supervisory and risk management tools need to expand to include stress testing – and from this came the supervisory stress test and resulting federal reserve capital rule and the requirements in dodd - frank for stress testing. i think it ’ s fair to say that the new capital rules will and should change how firms think about risk within their organizations. whether it ’ s the increases in risk weights of certain types of exposures, or the overall imposition of leverage constraints, the new capital rules are designed to build a more resilient financial system that is better prepared to handle and weather the next crisis. the capital requirements for large banks are supplemented by a liquidity framework. thinking back to the financial crisis it ’ s fairly clear from the experiences of most firms during that period of time that liquidity was essential in survival. those firms that didn ’ t have sufficient liquidity suffered greatly. here, too, the basel committee has played an important role in developing and implementing an internationally - agreed - to - framework for enhancing liquidity across large international firms. the new framework currently includes a short - term requirement – the liquidity coverage ratio ( lcr ) and discussions are underway to include a longer - term requirement – the net stable funding ratio ( nsfr ). while capital and liquidity rules for large financial institutions are in the process of being implemented – and significant progress has already been made in bolstering levels of both capital and liquidity in banking organizations – there are still areas within the financial system where additional focus on building resilience continues to evolve. in particular, enhanced risk management standards for financial market utilities have been adopted by international bis central bankers ’ speeches standard setters and, in the u. s., the agencies have recently proposed new rules to adopt these standards for u. s. firms. among these new standards are expectations that financial market utilities, including those that act as central counterparties ( ccps ), be more resilient to shocks – with a particular focus on enhancing liquidity and liquidity risk management. while ccps reduce aggregate risk, they

even without the political pressures those governments face. one final note on the financial system. the global financial system is in the process of very dramatic change. the changes of even just the last five years are extraordinary, in terms of the size, and strength, and scope of the major global firms, the role of private leveraged funds, the extent of risk transfer and the increase in the size of the derivatives market, the change in the structure of the credit market, the increase in and changes in the pattern of cross border financial flows. these changes, and others, seem likely to have made the financial system both more effective in moving capital to its most productive use and more stable and resilient over time. but they do not, of course, mean the end of systemic risk in financial markets. they could in some circumstances work to magnify rather than mitigate stress. central banks, supervisors and those running the major private financial institutions need to continue to work to ensure that what jerry corrigan calls the “ shock absorbers ” in the financial system - capital and liquidity and the operational infrastructure - are sufficiently strong and robust to withstand economic and financial conditions more adverse than we have seen in the recent past. thank you.