a level playing field. to avoid or mitigate potential disruptions in wholesale dollar funding markets, the proposed rules require foreign banking organizations to hold sufficient high - quality liquid assets to meet expected near - term net outflows in a stress scenario. these rules should reduce the pressure on foreign banks that rely heavily on short - term dollar funding to either sell illiquid dollar assets or cut back on dollar lending in times of financial stress. by helping to alleviate disruptions in dollar funding markets the rules should also reduce the reliance on swap lines in a future stress episode. finally, the central role played by money market funds in the 2011 episode is a reminder of the fragility of these funds themselves – and of the risk created by their combination of risky asset holdings, stable - value demandable liabilities, and zero - capital buffers. the events following the lehman brothers bankruptcy in 2008 provide even starker evidence of the risks that money market funds pose for the broader financial system. in light of these vulnerabilities, i welcome the recent proposed recommendations by the financial stability oversight council for further money market fund reforms. 8 to conclude : financial globalization undoubtedly brings with it substantial benefits. at the same time, it creates important challenges for financial stability and for the appropriate design of regulation. the research discussed in conferences such as this one will help us better understand and respond to these challenges. thank you, and i look forward to your questions. see u. s department of the treasury ( 2012 ), “ financial stability oversight council releases proposed recommendations for money market mutual fund reform, ” press release, november 13. bis central bankers ’ speeches

avert fire sales of dollar assets and maintain the flow of credit to u. s. households and firms. although we documented cutbacks in dollar lending in the latter half of 2011 by foreign banks reliant on the cip basis is typically measured as the difference between the interest rate differential embedded in fx swap prices and the differential implied by foreign - and domestic - currency libor rates. see u. s. securities and exchange commission ( 2012 ), “ sec releases money market fund portfolio and ‘ shadow nav ’ information to the public, ” press release, january 31. money - fund reliance is defined as liabilities held by money funds divided by total short - term debt plus deposits. see ricardo correa, horacio sapriza and andrei zlate ( 2012 ), “ liquidity shocks, dollar funding costs and the bank lending channel during the european sovereign crisis ( pdf ), ” international finance discussion papers 2012 - 1059 ( washington : board of governors of the federal reserve system, november ). bis central bankers ’ speeches wholesale dollar funding, those cutbacks likely would have been more pronounced in the absence of the swap lines i will now turn to regulation. it is useful to bear in mind that our current regulatory regime evolved during a period when the u. s. operations of foreign banks were largely net recipients of funding from their parents. however, their reliance on less stable, short - term wholesale funding increased significantly in the decade leading up to the financial crisis, when u. s. branches of foreign banks began borrowing large volumes of dollars to send to their foreign parents. such activity increases the vulnerabilities i described earlier. and it may not only pose the risk of a cutback in lending, but could also threaten the safety and soundness of the foreign banks themselves – and of the u. s. entities exposed to those banks. the regulation of u. s. branches of foreign banks has changed little over the past decade, even in the face of these significant changes in the global banking landscape. however, last week, the federal reserve board proposed new rules for foreign banking organizations that would address some of the concerns that i ’ ve discussed and thereby mitigate the attendant risks to u. s. financial stability. these proposed rules apply enhanced prudential standards to foreign banking organizations and are designed to increase their resiliency. importantly, the rules will not disadvantage foreign banks relative to domestic u. s. banking firms, but rather the rules seek to maintain