developments related to cbdc abroad. we are engaging in several international efforts to improve the transparency, timeliness, and cost - effectiveness of cross - border payments. it will be important to be engaged at the outset on the development of any international standards that may apply to cbdcs, given the dollar ’ s important role as a reserve currency. complement currency and bank deposits see bank for international settlements, committee on payments and market infrastructures, enhancing crossborder payments : building blocks of a global roadmap stage 2 report to the g20 ( basel : bis, july 2020 ), https : / / www. bis. org / cpmi / publ / d193. pdf ; and financial stability board, enhancing cross - border payments : stage 3 roadmap ( washington : fsb, october 13, 2020 ), https : / / www. fsb. org / wp - content / uploads / p131020 - 1. pdf. - 7a guiding principle for any payments innovation is that it should improve upon the existing payments system. consumers have access to reliable money in the forms of private bank accounts and central bank issued currency, which form the underpinnings of the current retail payments system. the design of any cbdc should complement and not replace currency and bank accounts. preserve financial stability and monetary policy transmission the introduction of a cbdc has the potential to have wide - reaching effects, and there are open questions about how cbdc could affect financial stability and monetary policy transmission. some research indicates that the introduction of a cbdc might raise the risk of a flight out of deposits at weak banks in favor of cbdc holdings at moments of financial stress. 9 other research indicates that the increase in competition could result in more attractive terms on transactions accounts and an overall increase in banking system deposits. 10 banks play a critical role in credit intermediation and monetary policy transmission, as well as in payments. thus, the design of any cbdc would need to include safeguards to protect against disintermediation of banks and to preserve monetary policy transmission more broadly. while it is critical to consider the ways in which a cbdc could introduce risks relative to the current payments system, it may increase resilience relative to a payments system where private money is prominent. protect privacy and safeguard financial integrity the design of any cbdc would need to both safeguard the privacy of households ’ payments transactions and prevent and trace illicit activity to maintain the integrity of the

requirements are far below standardized requirements, in the united states there may well be a very large reduction in capital requirements relative to today's levels for the banking system as a whole. this is because we expect virtually all lcbos to choose - - or to be induced to choose - - the advanced approach. i must tell you frankly that regulators here and abroad would be quite uncomfortable if basel ii resulted in a substantial shedding of capital by the world's megabanks. at least until we have more experience, i think you should expect that we will have transition rules designed to limit the amount of actual reduction in capital that will be permitted, at least until we have time to evaluate the actual experience under basel ii. that is part of the necessary requirement to be sure we've got it right before errors become irreversible. i suppose that too little capital is more of a challenge for regulators than for banks. but this problem arises from features of the real world that none of us can ignore. supervisory philosophies and resources differ quite a bit across countries, and we must have a regulatory capital regime that can accommodate such differences. at the same time, we all believe that there must be competitive equity, and that banking systems must be well - enough capitalized to be stable. as i noted earlier, perhaps pillars ii and iii and market realities will blunt the problem of excessively low capital. but you will understand, and i hope respect, our need for caution. iv. summing up i am sure of one thing : the next accord will be imperfect no matter how hard we all try. the challenges are daunting, and i doubt we can meet them all at the outset. but i believe we will develop a set of rules and policies that will be a substantial improvement over the current framework and - - most important - - that the new groundwork will spur important further progress in risk management and in banking supervision. indeed, if the effort does nothing but improve risk management at banks and improve the risk focus of supervisors, it will be worth the time and resources we have all expended. but if you will help us with your comments and suggestions, i think we can come closer than that to the vision i described. to do so is in the interest of us all.