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

kevin m warsh : longer days, fewer weekends speech by mr kevin m warsh, member of the board of governors of the us federal reserve system, at the 12th annual international banking conference, chicago, illinois, 25 september 2009. * * * recent media stories and more substantial works chronicle in great detail the events of the past couple of years. 1 a pair of conclusions might be fairly drawn from these early drafts of history. one, the financial market turmoil of the past year proved to be of significant consequence to the economy. and two, the federal reserve distinguished itself from historical analogues by taking extraordinary actions to address risks to the economy. the commentary, however, tends to part ways as to whether the extraordinary actions undertaken were to the good or the detriment of the u. s. economy in the long - run. as my fellow members of the federal open market committee ( fomc ) and i stated earlier this week, economic activity has picked up, conditions in financial markets have improved further, and longer - term inflation expectations are stable. nonetheless, the second anniversary of the onset of the financial crisis – and about a year from the darkest days of the panic of 2008 – is no time to declare victory, scarcely the moment to hand out medals. 2 i cannot help but think of the strong but weary athlete who, after a morning swim, embarks upon a grueling cycling contest to a rising din of cheers and a smattering of boos … only to be reminded that he is participating in a triathlon, and that he has a long run still before him. in my view, it is unwise to prejudge the fed's policy strategy – or to declare the victor or the vanquished – by the split time, however notable it might be. we are at a critical transition period, of still unknown duration, and we must prepare diligently for an uneven road race ahead. if policy is not implemented with skill and force and some sense of proportionality, the success of the overall endeavor could suffer. judgments made by policymakers in the current period are likely to be as consequential as any made in the depths of the panic. that means policymakers should continue to communicate as clearly as possible the guideposts, conditions and means by which extraordinary monetary accommodation will be unwound, including the removal of excess bank reserves. 3 it also means that policymakers should acknowledge the heightened costs of policy error. the stakes are