only toward the end of the legislative exercise that resulted in the dodd - frank wall street reform and consumer protection act ( dodd - frank act ) that the process took a more partisan turn. indeed, the dodd - frank act contains measures that commanded fairly wide consensus, such as the need for higher capital requirements for the largest banks. furthermore, the origins of some features of the legislation rested as much or more with republican than democratic legislators, such as the section 165 requirement for resolution plans that will make systemically important firms resolvable in bankruptcy without requiring taxpayer support or resulting in major disorder in the financial system. the nature and impact of the new regulatory regime now let us fast forward to the present. less than a decade after being the epicenter of a global financial crisis, today the united states has the strongest and most diverse financial system of any major economy in the world. credit default swap ( cds ) spreads and other market indicators suggest that investors have remained confident in the solvency of large u. s. banks through several recent episodes of global financial volatility. 7 for example, during the market strains at the beginning of this year, the cds spreads of u. s. banks increased only 25 to 50 basis points, and even so only briefly, while large banks in some other parts of the world saw their cds spreads increase substantially more and for a longer period. the relative strength of, and some have suggested that market - based measures of bank risk indicate that banks are not safer than before the crisis. for example, cds spreads are well above their levels in early 2006. but this as likely suggests that investors were too sanguine in 2006 as that they believe there has been no change in bank safety since then. and, as reflected in the changes made by credit ratings agencies in their assessment of implied support for banks from the government, markets may rightly perceive that the government is less likely now to bail out a bank that gets in trouble. moreover, equity prices may be down because some combination of economic conditions and regulation make profits likely to be lower than was expected and experienced in the unsustainable period leading up to the crisis. resulting market confidence in, u. s. banks has allowed them to expand their lending, the growth of which has returned during the last couple of years to a pace similar to that in the pre - crisis, pre - bubble years. 8 what accounts for this dramatic change in the position of the u. s. financial system? first, the crisis

other major economies and have held up well during the few bouts of moderate financial stress we have experienced over the last several years, these firms have not yet faced a major financial challenge. second, should we adjust statutory or regulatory provisions that are not needed for, or are less efficient means for achieving, financial stability? let me offer some perspective on answering both questions, along with a handful of specific proposals. with respect to the first question, there is certainly room for discussion over the most suitable minimum capital standards for the most systemically important financial firms. as i noted when we were deciding on the expected impact approach as the best available method for calibrating capital surcharges, there is no magic to that method. 14 indeed, even within that approach, we should be open to research that suggests new or improved ways to determine the relative systemic importance of firms. however, i think it is important to have a methodology that is clearly explained and is based on the research that has been done. let me note in passing two points that can be drawn from that research. first, there is work subsequent to the formulation of the basel iii capital standards suggesting that the costs of higher capital requirements may be somewhat lower, and the benefits broader, than previously thought. second, however, the reduction in the probability of a financial crisis associated with increasing capital levels will begin to level off at some point, thereby creating diminishing benefits for tighter capital standards. 15 see daniel k. tarullo ( 2011 ), “ regulating systemically important financial firms, ” speech delivered at the peterson institute for international economics, washington, dc, june 3, www. federalreserve. gov / newsevents / speech / tarullo20110603a. htm. see, for example, jihad dagher, giovanni dell ’ ariccia, luc laeven, lev ratnovski, and hui ton ( 2016 ), “ benefits and costs of bank capital, ” imf staff discussion note snd / 16 / 04 ( washington : international monetary fund, march ). moreover, as important as capital is to promoting systemic stability, it is not the only relevant consideration. the relative presence or absence of other regulations that mitigate risk in banks should affect minimum capital levels. to my mind, the most important of these are regulations limiting dependence of financial firms on runnable funding sources. 16 if a firm is not vulnerable to runs, it is far more likely to weather a financial