system i will finish with an update on progress on regulatory reforms and supervisory actions to strengthen the financial system. in october, the federal reserve board proposed a rule to strengthen the liquidity positions of large and internationally active financial institutions. 1 together with other federal agencies, the board also issued a final rule implementing the volcker rule, which prohibits banking firms from engaging in short - term proprietary trading of certain financial instruments. 2 on the supervisory front, the next round of annual capital stress tests of the largest 30 bank holding companies is under way, and we expect to report results in march. regulatory and supervisory actions, including those that are leading to substantial increases in capital and liquidity in the banking sector, are making our financial system more resilient. still, important tasks lie ahead. in the near term, we expect to finalize the rules implementing enhanced prudential standards mandated by section 165 of the dodd - frank wall street reform and consumer protection act. we also are working to finalize the proposed rule strengthening the leverage ratio standards for u. s. - based, systemically important global banks. we expect to issue proposals for a risk - based capital surcharge for those banks as well as for a long - term debt requirement to help ensure that these organizations can be resolved. in addition, we are working to advance proposals on margins for noncleared derivatives, consistent with a new global framework, and are evaluating possible measures to address financial stability risks associated with short - term wholesale funding. we will continue to monitor for emerging risks, including watching carefully to see if the regulatory reforms work as intended. since the financial crisis and the depths of the recession, substantial progress has been made in restoring the economy to health and in strengthening the financial system. still, there is more to do. too many americans remain unemployed, inflation remains below our longer - run objective, and the work of making the financial system more robust has not yet been completed. i look forward to working with my colleagues and many others to carry out the important mission you have given the federal reserve. thank you. i would be pleased to take your questions. see board of governors of the federal reserve system ( 2013 ), " federal reserve board proposes rule to strengthen liquidity positions of large financial institutions, " press release, october 24. see board of governors of the federal reserve system, commodity futures trading commission, federal deposit insurance corporation, office of the comptroller of the currency, and securities and exchange commission ( 2013 )

in japan's banking sector were not resolved, so they continued to get worse well after the bubble had burst. in addition, with the benefit of hindsight, it seems clear that the bank of japan did not ease monetary policy sufficiently or rapidly enough in the aftermath of the crisis. a lesson that i draw from japan's experience is that the serious mistake for a central bank that is confronting a bubble is not failing to stop it but rather failing to respond fast enough after it has burst. deflation in japan might never have set in had the bank of japan responded more rapidly after the asset price crash, which was substantially weakening demand in the economy. if deflation had not gotten started, japan would not have experienced what has been referred to by economist irving fisher as debt deflation, in which the deflation increased the real indebtedness of business firms, which in turn further weakened the balance sheets of the financial sector. another lesson from japan is that if a burst bubble harms the balance sheets of the financial sector, the government needs to take immediate steps to restore the health of the financial system. this should involve structural improvements in the way banks operate, not bailing out insolvent institutions. the prolonged problems in the banking sector are a key reason that the japanese economy did so poorly after the bubble burst. frederic s. mishkin and eugene n. white ( 2002 ), " u. s. stock market crashes and their aftermath : implications for monetary policy, " nber working paper series 8992. cambridge, mass. : national bureau of economic research, june ; also in william curt hunter, george g. kaufman, and michael pomerleano, eds., asset price bubbles : the implications for monetary, regulatory, and international policies. cambridge, mass. : mit press, pp. 53 - 80. a third assumption needed to justify a special focus on asset prices in the conduct of monetary policy is that a central bank actually knows the appropriate monetary policy to deflate a bubble. the effect of interest rates on asset price bubbles is highly uncertain. although some theoretical models suggest that raising interest rates can diminish the acceleration of asset prices, others suggest that raising interest rates may cause a bubble to burst more severely, thus doing even more damage to the economy. an illustration of the difficulty of knowing the appropriate response to a possible bubble was provided when the federal reserve tightened monetary policy before the october 1929 stock market crash because of its concerns about a possible stock