g - sib surcharge framework that could be useful is a firm ’ s use of shortterm wholesale funding, which may serve as a proxy for liquidity vulnerability. historically, reliance on short - term, uninsured funding from sophisticated funding sources has created vulnerability to large - scale funding runs and increased risks related to financial sector interconnectedness. specifically, this can lead to “ fire sale ” effects that may affect broader financial stability — which occurs when banks that fund long - term or illiquid assets with short - term deposits from financial intermediaries like pension funds and money market mutual funds need to rapidly sell less - liquid assets to maintain their operations. outside of the g - sib surcharge framework, the board has employed a measure of nonbank activities in certain rulemakings. these activities, which are conducted outside of a regulated depository institution, represent another source of complexity for large banks. for example, some nonbank entities engage in complex trading that is not permitted in depository institutions because of their risk. banks with assets greater than $ 250 billion in addition to thinking about how we will tailor our regulation and supervisory programs for firms with assets between $ 100 billion and $ 250 billion, i believe the board should also review the requirements applicable to the firms with more than $ 250 billion in total assets but below the gsib threshold. this review should ensure that our regulations continue to appropriately increase in stringency as the risk profiles of firms increase, consistent with our previously stated tailoring 3 / 5 bis central bankers'speeches goals and the new legislation. the supervision and regulatory framework for these firms should reflect that there are material differences between those firms that qualify as u. s. g - sibs and those that do not. for example, we know that non - g - sibs with more than $ 250 billion in assets are generally less complex and less interconnected than u. s. g - sibs and thus pose relatively less risk to financial stability. g - sibs, on the other hand, have more complex activities, are more interconnected, and pose a far greater risk to financial stability should they fail. yet at the moment, many aspects of our regulatory regime treat any bank with more than $ 250 billion in assets with the same stringency as a g - sib. i believe there should be a clear differentiation. next steps from the federal reserve in my view, the board should make it a near - term priority to issue a proposed rule

randal quarles : getting it right - factors for tailoring supervision and regulation of large financial institutions speech by mr randal k quarles, vice chairman for supervision of the board of governors of the federal reserve system, at the american bankers association summer leadership meeting, salt lake city, utah, 18 july 2018. * * * i want to thank the american bankers association for inviting me to speak. 1 this is an era of relatively rapid evolution in banking regulation, an area of human endeavor that is not commonly known for its speedy metamorphoses. but in the time since i became the vice chairman for supervision at the federal reserve, we have seen agreement on the final pieces of the international framework for post - crisis regulation — the so - called basel iii endgame. the federal reserve has issued a number of proposed rule changes that would improve our capital and stress testing regime. and in late may, the congress enacted the economic growth, regulatory relief, and consumer protection act ( egrrcpa ), which, among other things, directs us to further tailor our supervision and regulation of large banks with more than $ 100 billion in assets. in other words, the congress wants to see action and has, to a certain degree, specified some of the steps we need to take. how we respond to that task, especially as it applies to large banks, will be the focus of my remarks today. but before i delve into those details, i want to provide an overview of what i hope you ’ ll take away. first, i want to underscore that i believe tailoring of financial regulation is good public policy. the federal reserve board is a firm adherent of the recent legislation ’ s underlying principle that regulation should be tailored to risk. to an extent, as i will later describe, this principle is already embedded in several aspects of our supervisory framework. second, the federal reserve will need to revise its framework to allow for a greater differentiation in the supervision and regulation of large firms. to date, our tailoring of regulations has been based largely but not exclusively on asset size, which reflects an unduly onedimensional approach. we have been evaluating additional criteria that may provide for greater regulatory differentiation across large banks, and the recent legislation is consistent with the goals of that initiative. specifically, the legislation recognizes that large banks have a variety of business models and risk profiles ; supervision should be flexible enough to incorporate this heterogeneity. third,