. these internal assessments will enable each institution to determine the appropriate level of capital for its unique long - term business strategy. these internal capital assessments are, we believe, critically important, and are also subject to supervisory review. finally, institutions must publicly disclose key information relating to credit and operational risks, under pillar 3, to ensure adequate transparency for market participants, customers, and counterparties, so that market discipline can also work effectively to differentiate risk exposures among banking organizations. i would like to stress that the basel ii framework has three pillars and note that pillars 2 and 3 are critical components of the overall framework. they should not be overlooked. to accompany the basel ii and market risk proposals, the agencies plan to publish in the federal register reporting requirements for institutions planning to adopt basel ii and the updated market risk rules in the united states. each institution that qualifies for and applies the basel ii capital rules and the updated market risk rules would file quarterly regulatory data, some of which would remain confidential, for the agencies'use in assessing and monitoring the levels and components of each reporting entity's risk - based capital requirements and the adequacy of the entity's capital. these data also would support the agencies'efforts to analyze the quantitative impact and competitive implications of the basel ii capital rules and the updated market risk rules on individual reporting entities and on an industrywide basis. in addition, the reporting schedules will help clarify for these entities our expectations surrounding the systems and other infrastructure necessary for implementation and validation of the two proposals. the submitted data would supplement on - site examination processes, and the data released publicly would provide other interested parties with information about banks'risk profiles and capital adequacy. importance of the regulatory capital proposals while our reasons for moving to basel ii have not changed since we began this endeavor, i believe they are worth reiterating. our core reason is that the current basel i framework is inadequate for the largest, most complex u. s. banking organizations. the current basel i capital requirements simply are not able to capture the full array of risks facing these organizations. for example, they do not explicitly recognize the operational risk embedded in many of the services from which the largest institutions generate a good portion of their revenues today. further, basel i does not differentiate the riskiness of assets within the major asset types based on either borrower creditworthiness or the presence of collateral or other risk mitigants. this lack of sophistication can lead to significant distortion

##c has been confronted with a significant increase in safe asset demand and a significant fall in safe asset supply. faced with these changes, the committee can only achieve its macroeconomic objectives by taking actions to push down the real interest rate. indeed, as i argued earlier, the subdued outlook for prices and employment suggests that the fomc ’ s actions have not lowered the real interest rate sufficiently. what about the future? the passage of time will ameliorate these changes in the demand for and supply of safe assets – but only partially. any long - run forecast has enormous attendant uncertainties. but i expect that for a considerable period of time – possibly the next five years or more – credit market access will remain limited relative to what borrowers had available in 2007. i expect that many workers and businesses will remain more concerned than in 2007 about the risk of a large adverse shock. and i also expect that businesses will continue to feel a heightened degree of uncertainty about taxes and households will continue to feel a heightened degree of uncertainty about the level of federal government benefits. these considerations suggest that, for many years to come, the fomc will have to maintain low real interest rates to achieve its congressionally mandated goals. i see this conclusion as broadly consistent with the april fomc statement, which predicts that the target fed funds kocherlakota ( 2012 ) provides a formal model of this mechanism. bis central bankers ’ speeches rate will remain low for some time after inflation and employment are near mandateconsistent levels. financial market outcomes associated with low real interest rates i have argued that, for some time to come, the fomc will only be able to achieve its dual mandate outcomes if the time path of real interest rates is considerably lower than in 2007 – as much as two full percentage points lower. i now turn to the consequences of these unusually low real interest rates for broader financial market conditions. my main point is that unusually low real interest rates are likely to be associated with other unusual financial market outcomes. i ’ ll discuss three of these outcomes in some detail : inflated asset prices, unusually volatile asset returns and high merger activity. the first consequence of low real interest rates that i mentioned – higher asset prices – is the most obvious. long - lived assets are somewhat substitutable for each other. hence, investors generally respond to low real yields on bonds by bidding up the price of other long - lived assets – including gold, land, stocks or machines. it follows