economic prospects, the basic questions surrounding capital and regulatory reform have now been answered. we anticipate that some firms with high capital levels that have been retaining solid earnings for several quarters will be interested in increasing or resuming dividends. in response to these anticipated requests, we will soon be issuing supervisory guidelines applicable to such requests from the largest holding companies for the first quarter of next year. although the details of these guidelines are still being finalized, i can say that our approach to considering such requests will be a conservative one. we will expect firms to submit convincing capital plans that demonstrate their ability to absorb losses over the next two years under an adverse economic scenario that we will specify, and still remain amply capitalized. we also expect that firms will have a sound estimate of any significant risks that may not be captured by the stress testing, such as potential mortgage putback exposures, and the capacity to absorb any consequent losses. the firms will also be asked to show how, even with their proposed capital distributions, they will readily and comfortably meet the basel iii requirements as they come into effect, as well as to accommodate any business model changes that might be necessitated by dodd - frank. conclusion the final set of major dodd - frank regulations will not be completed until early 2012. a year from now we will be in the midst of a regulatory process implementing basel iii, and there will likely be an active debate over the future of the government - sponsored enterprises. so i see little risk that the third annual conference on financial regulatory reform at george washington law school will be entitled “ the end of the road. ” maybe, just maybe, i have given you a title for the fourth. then again, maybe not.

the sum of the minimum and buffer requirements. however, restrictions on capital distributions will result, which will become progressively more stringent as the common equity ratio drops closer to the 4. 5 % minimum. the buffer is thus designed to forestall banks from continuing to pay dividends even as they come under stress, a practice observed in some institutions during the financial crisis. realistically, both regulators and markets will expect firms generally to maintain their common equity ratios above 7 %. third, basel iii makes extensive changes to the risk weights assigned to a financial institution ’ s traded assets and counterparty exposures. as i mentioned earlier, the marketrisk requirements of the pre - crisis capital regime were woefully inadequate. in many instances, they simply did not reflect the actual risk assumed by an institution. they also created an invitation to arbitrage credit risks by turning them into traded assets with lower risk weights. it is also noteworthy that the changes in risk weights incorporate some elements of a macroprudential perspective as, for example, in higher capital requirements on equity investments in other financial firms and credit exposures to large financial firms. fourth, basel iii provides for a minimum leverage ratio, roughly similar to requirements already applicable under national law in the united states and canada. while the terms of this leverage requirement have been agreed to, there will be a supervisory monitoring period and then a parallel run to assess its impact, particularly in countries with no history of such a requirement, and to provide for adjustments if warranted. finally, basel iii has a rather lengthy and complicated transition period, with the new requirements to be phased in between january 1, 2013, and january 1, 2019. we favored a significant transition period, so as to allow firms flexibility in adjusting to the new regime through such means as running off higher risk - weighted assets, adjusting their business models gradually, or using retained earnings to add any new capital that might be required under the new rules. to be honest, however, we did not think the transition period needed to stretch over eight years. in fact, it appears that most u. s. banking entities expect to meet the new requirements considerably sooner. however, the lengthy transition period was an important inducement for some countries to agree to the new, much stronger standards. with the agreements reached in july and september at meetings of the governors and heads of supervision ( ghos ) in basel, the structure and basic elements of basel iii are clear. details are still being worked out by