not forget that banking tends to be a cyclical business irrespective of regulatory requirements. nonetheless, the basel committee has begun a comprehensive review of the potential procyclicality of the basel ii framework. the objective is to promote adequate capital buffers over the credit cycle and to mitigate the risk that the minimum capital requirement magnifies the procyclicality of the financial system. under discussion are ways to promote a high quality tier 1 capital buffer that banks would increase in good times and be allowed to use in difficult times. supervisors are also reviewing the need to supplement the current risk - based approaches with simple, transparent gross measures of risk. this would constrain the amount of leverage banks could have in good times and therefore also contain the degree of deleveraging in bad times. let me now turn to lessons that can be drawn from the financial crisis with regards to supervisory arrangements. over the past one and a half years supervisory arrangements around the world have been put to the test. these real stress tests have provided us with important insights into the pros and cons of different supervisory arrangements. and, though there is no single optimal supervisory arrangement, three lessons can be drawn. first, as macroprudential supervision and microprudential supervision strongly overlap, central bankers and prudential supervisors should cooperate closely and continuously. second, financial supervisors need to step up international cooperation, simply because the financial industry is particularly internationalized. third, while prudential and conduct of business supervision are distinctly different, they are complementary and should both receive due attention. separating prudential and conduct of business supervision institutionally helps to keep both supervisory goals in clear sight. as financial sectors today are more concentrated, more integrated and more exposed to the financial markets than ever before, problems at individual institutions are increasingly likely to have systemic consequences. indeed, during the financial crisis we saw several examples, most notably the collapse of lehman brothers in september 2008 which had a truly systemic impact. these events have demonstrated that the distinction between macro - and microprudential stability is hypothetical in practice. therefore, there is an urgent need for close and continuous cooperation between macro - and microprudential supervisors, of course with due observance of the relevant legal provisions. such cooperation can be achieved in different institutional settings. also when the central bank plays no role in microprudential supervision, extensive micro - macro cooperation can be and in fact should be organized. the need for effective interplay

##bach, and david reifschneider ( 2015 ), “ the macroeconomic effects of the federal reserve ’ s unconventional monetary policies ( pdf ), ” finance and economics discussion series 2015 005 ( washington : board of governors of the federal reserve system, january ). reflecting securities holdings from the asset purchases, the federal reserve has remitted about $ 500 billion to the u. s. treasury from 2008 to 2014 and is expected to have cumulative net income from 2008 to 2025 that is far higher than would have been the case in the absence of these asset purchases. bis central bankers ’ speeches policy normalization turning to policy normalization, the fomc and market participants anticipate that the federal funds rate will be raised sometime this year. we have for some years been considering ways to operate monetary policy with an elevated balance sheet. prior to the financial crisis, because reserve balances outstanding averaged only around $ 25 billion, relatively minor variations in the total amount of reserves supplied by the desk could move the equilibrium federal funds rate up or down. with the nearly $ 3 trillion in excess reserves today, the traditional mechanism of adjustments in the quantity of reserve balances to achieve the desired level of the effective federal funds rate may well not be feasible or sufficiently predictable. as discussed in the fomc ’ s statement on its policy normalization principles and plans, which was published following the september 2014 fomc meeting, we will use the rate of interest paid on excess reserves ( ioer ) as our primary tool to move the federal funds rate into the target range. 5 this action should encourage banks not to lend to any private counterparty at a rate lower than the rate they can earn on balances maintained at the fed, which should put upward pressure on a range of short - term interest rates. because not all institutions have access to the ioer rate, we will also use an overnight reverse repurchase agreement ( on rrp ) facility, as needed. in an on rrp operation, eligible counterparties may invest funds with the fed overnight at a given rate. the on rrp counterparties include 106 money market funds, 22 broker - dealers, 24 depository institutions, and 12 government - sponsored enterprises, including several federal home loan banks, fannie mae, freddie mac, and farmer mac. this facility should encourage these institutions to be unwilling to lend to private counterparties in money markets at a rate below that offered on overnight reverse repos by the fed. indeed,