rules clearly seem to have influenced the way banks manage their balance sheets. in the united states, bank holding companies subject to the lcr significantly increased their holdings of high - quality liquid assets from the beginning of 2013 until the beginning of this year, to the point that many internationally active banks reported their lcr ratios already above fully phased - in requirements, even though the transition rules set an 80 percent minimum ratio for january 1, 2015. it is worth noting that the net capital rule for broker - dealers maintained by the u. s. securities and exchange commission is a form of hybrid capital and liquidity regulation. however, it seems basically oriented to protecting customers, a bit like traditional regulation of life insurance companies, and was not developed with going concern or systemic implications in mind. it does not, for instance, place higher requirements on firms with heavy reliance on short - term wholesale funding, though it does penalize firms that hold large amounts of illiquid assets. in many respects the rule seems well - suited to smaller broker - dealers but, for reasons explained earlier, it does not seem optimal for the large broker - dealers in large bank holding companies. bis central bankers ’ speeches to a considerable extent, of course, the basel framework covers these firms. in the eu, any broker - dealer is covered, whether as a stand - alone entity or as part of a universal bank. in the pre - crisis period in the united states, matters were less clear, since only broker - dealers affiliated with bank holding companies were covered by the full panoply of basel requirements. there was partial coverage of the five largest freestanding broker - dealers that needed such oversight in order to operate within the eu. because, during the crisis, those five firms either became bank holding companies or failed and had their continuing operations absorbed by bank holding companies, all sizeable domestically owned brokerdealers are now covered by basel requirements. however, as i mentioned just a moment ago, the basel framework itself has not gone as far as is desirable in making capital requirements at the largest institutions sensitive to macroprudential funding concerns, a circumstance underscored by the balance sheets typical of broker - dealers. consideration of changes such as refinement of the formula for assigning surcharges to g - sibs would be useful when basel standards are revisited over time. in the interim, there are more near - term opportunities for supervisory measures that take account of the relationship between capital levels and funding vulnerabilities

“ runnability ” of its liabilities create greater threats to both its stability and that of the financial system as a whole. where a firm is significantly dependent on this kind of funding, it may need more common equity to convince counterparties and investors of its solvency during periods in which assets are very volatile and to maintain its solvency should it need to sell assets at fire sale prices. this microprudential basis for higher capital requirements is complemented by the macroprudential rationale that intermediaries whose deleveraging could have a broad impact on market liquidity through fire sale or related effects should be required to hold still more capital. let me make three additional points on this rationale for higher capital standards. first, a run that cuts off funding to widely held assets is a greater risk to the system than a conventional bank run in the absence of deposit insurance. a bank ’ s whole loans would not usually be sold in great number even under stressed circumstances and, even to the degree they were, other banks ’ portfolios of loans are generally not marked down because of the stressed bank ’ s sales. second, the possible availability of central bank liquidity support does not obviate the need for higher capital for intermediaries reliant on short - term wholesale funding. the same factors that make market actors uncertain about the value of the intermediary ’ s assets in times of stress will be relevant to the central bank ’ s ability to assure itself that the recipient of temporary liquidity is in fact solvent. third, because these risks to the firm and for a highly insightful survey of the implications of illiquidity issues for market performance and regulation, see jean tirole ( 2011 ), “ illiquidity and all its friends, ” journal of economic literature vol. 49, no. 2, pp. 287 – 325. see, e. g., markus brunnermeier and lasse heje pedersen ( 2009 ), “ market liquidity and funding liquidity, ” review of financial studies, vol. 22, no. 6, pp. 2201 – 2238 ; viral acharya and s. viswanathan ( 2011 ), “ leverage, moral hazard, and liquidity, ” journal of finance, vol. 66, no. 1, pp. 99 – 138 ; zhiguo he and wei xiong ( 2012 ), “ rollover risk and credit risk, ” journal of finance,