to exchange information and analysis in an effort to identify potential sources of financial instability and to take action to help mitigate the buildup of risks in international financial markets, particularly those potentially posing systemic risks. embracing these goals does not, of course, answer the often complex questions raised in specific initiatives, such as the degree to which rules should be standardized and the degree to which national variation or discretion is warranted in pursuing shared regulatory ends. but i do think it is useful to keep all of these goals in mind as we pursue our international agenda. our task as u. s. regulators is to work to ensure that, together, the various international financial organizations produce reforms and practices that are consistent with u. s. interests and legal requirements. the federal reserve ’ s role in international financial reform efforts as a central bank with significant supervisory responsibilities, the federal reserve actively participates in both ( 1 ) central - bank - focused groups that monitor developments in global financial markets and promote sound and efficient payment systems and ( 2 ) supervisory forums, such as the basel committee on banking supervision ( basel committee ), which promotes high global standards for banking supervision and regulation. we also actively participate in the fsb, which is coordinating many of the initiatives undertaken in response to the financial crisis and is directly communicating with the group of twenty ( g20 ). our contributions to these groups take advantage of the synergies between our central banking functions and our supervisory responsibilities. our contributions combine our economic research, knowledge of financial markets, and regulatory policy experience. interestingly, in the wake of the financial crisis, we see some other countries, notably the united kingdom, moving back toward a more significant involvement of the central bank in supervision, presumably for these same reasons. basel iii the basel committee is working toward new global standards for minimum bank capital levels and a new liquidity requirement – a project that has become known as basel iii. this undertaking is central to the first and second goals for international cooperation that i noted earlier. the basel committee aims to complete this task by the november g20 leaders meeting in seoul. the federal reserve has devoted considerable resources to this important global initiative, and we note that international bank supervisors continued to make progress at the basel committee meeting last week. we agree with the yardstick set forth last month by the g20 leaders in toronto – that minimum capital requirements should “ enable banks to withstand – without extraordinary government support – stresses of a magnitude associated with the recent financial crisis. ” 1 our view is that large

institutions should be sufficiently capitalized so that they could sustain the losses associated with a systemic problem and remain sufficiently capitalized to continue functioning effectively as financial intermediaries. meeting this standard will require a considerable strengthening of existing requirements, both with respect to the amount of capital held and to the quality of that capital. as to the former, it is particularly important that the risk weightings associated with traded instruments be substantially increased. as to the latter, the crisis confirmed what many of us have long believed – that common equity is by far the best measure of a firm ’ s loss absorption capacity. during the crisis, regulators, counterparties, and market analysts all looked to levels of common equity as the key measure of a firm ’ s durability in the face of extraordinary financial stress. we have conducted extensive analysis to inform our judgments on the specific rules needed to implement this standard. in this respect, the stress tests we conducted last year as part of the supervisory capital assessment program have been very useful in assessing the amount of capital needed to survive a financial crisis without unusual government support. since the basel committee published its proposals in a number of consultative documents, the federal reserve and the other u. s. federal banking agencies have been working together for a basel iii framework that produces a strong set of globally consistent capital g20 ( 2010 ), “ the g20 toronto summit declaration, ” financial sector reform, item 18, g20 toronto summit held june 26 – 27 in toronto, canada. and liquidity requirements that will promote financial stability and a level playing field for internationally active banks. we have assessed how various proposals would, or would not, achieve that aim. we have also considered carefully how to structure the transition to the new requirements so as to minimize their effect on the economy as a whole and to allow adequate time for firms to adjust their capital accounts. although adopting a robust, common set of capital and liquidity rules for internationally active banks is critical, it is neither practical nor desirable to negotiate all details of financial regulation internationally. it is important that the united states preserves the flexibility to adopt prudential regulations that work best within the u. s. financial and legal systems. within a common set of agreed - upon global standards, each jurisdiction will want to tailor some of its rules and supervisory practice to national conditions and preferences. along these lines, there have been recent discussions within the fsb on the possibility of formalizing consultations among member countries to examine how each member is using its own mix