late 1980s that preceded the 2 / 5 bis central bankers'speeches relatively mild recession of 1990 – 91, and this appears at least in part related to the size of the affected institutions. in fact, empirical research done at the federal reserve shows that stress among larger banks does more significant harm to the economy than stress at smaller banks, even after controlling for the aggregate size of bank failures. 2 we also know that larger banks are more operationally complex — even when not engaged in complex business lines — with a broader geographic scope and more layers of management than smaller banks. therefore, it seems appropriate to me that a path forward for tailoring supervision and regulation of large banks should not ignore size, but consider it as one factor — although only one factor — along with other factors. before the enactment of the recent legislation, we had begun work on considering additional factors that capture large firms ’ degree of complexity and interconnectedness that in conjunction with size may provide a better basis for tailoring supervision and regulation than size alone. the systemic effect of a bank ’ s failure or distress is positively correlated with that organization ’ s business, operational, and structural complexity. generally, the more complex a banking organization is, the greater the expense and time necessary to resolve it. similarly, financial institutions may be interconnected in many ways, as large banks commonly engage in transactions with other financial institutions that give rise to a wide range of contractual obligations. financial distress at a large bank may materially raise the likelihood of distress at other firms given the network of contractual obligations throughout the financial system. so how do we gauge the degree of complexity and interconnectedness of large firms? rather than formulating new and untested measures of these factors, i believe we would be well served to begin by looking to our body of post - crisis regulation as a source. i will highlight a few factors that already reside in various areas of our regulatory framework that i am considering. the g - sib surcharge indicators are likely to be a helpful source in this effort. for example, one factor from that framework that we might consider for purposes of tailoring is cross - border activity. this would measure assets and liabilities related to transactions with foreign banks, individuals, and companies, among others. this factor measures both a firm ’ s complexity and resolvability, as foreign operations add operational complexity in normal times and complicate the ability of the firm to undergo an orderly resolution in times of stress. another factor from the

implementation responsibilities. the federal reserve is committed to its long - standing practice of ensuring that all its rulemakings be conducted in a fair, open, and transparent manner. accordingly, we are disclosing on our public website summaries of all communications with members of the public – including banks, trade associations, consumer groups, and academics – regarding matters subject to a proposed or potential future rulemaking under the act. in addition to our own rulemakings and studies, we have been providing technical and policy advice to the treasury department as it works to establish the oversight council and the related office of financial research. we are working with the treasury to develop the council ’ s organizational documents and structure. we are also assisting the council with the construction of its framework for identifying systemically important nonbank financial firms and financial market utilities, as well as with its required studies on the proprietary trading and private fund activities of banking firms and on financial - sector concentration limits. additionally, work is well under way to transfer the federal reserve ’ s consumer protection responsibilities specified in the act to the new bureau of consumer financial protection. a transition team at the board, headed by governor duke, is working closely with treasury staff responsible for setting up the new agency. we have established the operating accounts and initial funding for the bureau, and we have provided the treasury detailed information about our programs and staffing in the areas of rulemaking, compliance examinations, policy analysis, complaint handling, and consumer education. we are also providing advice and information about supporting infrastructure that the bureau will need to carry out its responsibilities, such as human resource systems and information technology. well before the enactment of the dodd - frank act, the federal reserve was working with other regulatory agencies here and abroad to design and implement a stronger set of prudential requirements for internationally active banking firms. the governing body for the basel committee on banking supervision reached an agreement a few weeks ago on the major elements of a new financial regulatory architecture, commonly known as basel iii. by increasing the quantity and quality of capital that banking firms must hold and by strengthening liquidity requirements, basel iii aims to constrain bank risk - taking, reduce the incidence and severity of future financial crises, and produce a more resilient financial system. the key elements of this framework are due to be finalized by the end of this year. in concordance with the letter and the spirit of the act, the federal reserve is also continuing its work to strengthen its supervision of the largest, most