- bliley act of 1999, which consolidated and extended the administrative changes that had allowed more extensive affiliations of commercial banks with investment banks, broker - dealers, merchant banks, and other financial firms. by the turn of the century, then, the depression - era cluster of restrictions on commercial banks had been substantially loosened. banks could operate nationally, had few practical restrictions on their ability to pay competitive deposit rates, could conduct a much broader range of activities within their own operations, and could affiliate with virtually any kind of financial firm. meanwhile, of course, financial engineering had been rapidly changing the character of the financial services sector as a whole. securitization and associated derivative instruments were merging capital markets and traditional lending activities, fueling the growth of what has become known as the shadow banking system. as a result, both the asset mix and sources of funding of many banks were shifting, sometimes dramatically. various larger banks were also becoming involved, either directly or through their affiliates, in the full range of activities associated with securitization – including sponsoring and administering special purpose vehicles used in the securitization process. perhaps because the removal of activities and affiliation restrictions occurred in stages, rather than in a single legislative or administrative action, there was no announced new regulatory emphasis to address the changed industry. in practice, however, regulators relied increasingly on capital requirements, accounting rules, and to a lesser extent, limits on bank transactions with their corporate affiliates, to promote the safety and soundness of banking organizations. although they had long used bank capital ratios as a supervisory tool, u. s. bank regulators did not impose explicit minimum capital requirements until the 1980s. in the ensuing quarter century, the attention of banking regulators has been heavily oriented toward elaborating capital requirements to reflect more precisely the particular risks faced by a financial institution – first through the basel i process and more recently through the lengthier and more complex basel ii process. the emphasis on capital measures was reinforced when, following the savings and loan calamity, congress instructed federal banking agencies to use declining capital ratios as the trigger for " prompt, corrective " remedial action that was intended to constrain regulatory forbearance. the proximate reason for the move towards capital requirements in the early 1980s was regulator concern about the decline in capital ratios of the largest banks – a concern reinforced by congress, as it saw some of those large banks facing enormous losses on their loans to foreign countries. at the same time

based on the objectives of the facility. the current repo operations are conducted with only primary dealers and are designed to ensure a consistently ample supply of reserves to the banking system and support better interest rate control. as designed, these repos may have little effect on bank demand for reserves because the repo operations do not provide liquidity against hqla to a wide range of bank counterparties. a facility intended to affect reserve demand may therefore require different design features. - 13 exacerbating the issues i have discussed today. preliminary analysis suggests that changing those inputs to averages may be helpful. if we were to propose that change, it would not alter the stringency of the surcharge. as such, this option is something that we are actively considering. in summary, there are great benefits to safety and soundness and to financial stability for firms holding sufficient buffers of hqla to meet potential outflows in stress. i am not proposing any changes to this basic framework. what i am proposing is that we can potentially improve the efficiency of monetary policy implementation by improving the substitutability of reserves and treasury securities through adjusting our expectations for firms in stress - planning scenarios. there are a variety of approaches we could take, but i think the fed has a role to play. - 14 references bernanke, ben s. ( 2020 ). “ the new tools of monetary policy, ” presidential address to the american economic association, san diego, calif., january 4, https : / / www. brookings. edu / wpcontent / uploads / 2019 / 12 / bernanke _ assa _ lecture. pdf. board of governors of the federal reserve system ( 2019a ). “ minutes of the federal open market committee, june 18 – 19, 2019, ” press release, july 10, https : / / www. federalreserve. gov / newsevents / pressreleases / monetary20190710a. htm. — — — ( 2019b ). quarterly report on federal reserve balance sheet developments. washington : board of governors, november, https : / / www. federalreserve. gov / monetarypolicy / files / quarterly _ balance _ sheet _ deve lopments _ report _ 201911. pdf. — — — ( 2020 ). “ minutes of the federal open market committee, december 10 – 11, 2019, ” press release, january 3, https