periodic information collection by supervisors about risk positions would be out - of - date. the federal reserve's activities as a bank supervisor provide us with important and sometimes critical information, expertise, credibility, and powers to both deter and manage financial crises. thus, i want to take this opportunity to emphasize and reinforce the case for central bank involvement in bank supervision made by chairman bernanke in a speech last month. the deterrence and management of financial crises are of vital practical concern. the uncertainties surrounding these tasks are greater than anyone would want, and the costs of failure are much greater than anyone could desire. in my experience, the information, expertise, credibility, and powers that the federal reserve derives from its supervisory activities are extraordinarily helpful in our efforts to maintain economic and financial stability. perhaps we could be successful, as central banks in a number of countries are trying to be, without supervisory authority. but i, for one, would not want to take that risk. conclusion financial stability was the first and perhaps the most important responsibility of the federal reserve. to meet that responsibility, we must cooperate closely with colleagues here and abroad to adapt our techniques for preventing and managing situations that could undermine financial and economic stability. as i have tried to emphasize today, that process of adaptation must also recognize that it is ultimately the decisions of private participants, not governments, on which we rely for financial stability. as we interact with the private sector, we must preserve the incentives for innovation, the rewards for success, and penalties for failure that have made our financial markets the engines of rising living standards in a dynamic market economy.

, i would expect that the new baseline for the ccyb would be set at a level that would maintain the overall level of capital in the u. s. banking system throughout the business and financial cycles — that is, taking account of the likelihood that there would be periods where it would be above the baseline as well as below the baseline. to be clear, this shift would require us to revisit our current ccyb policy and would introduce additional layers of decisionmaking complexity to the scb proposal. on balance, however, i think this kind of shift would provide the board with a helpful, additional tool that could be adjusted quickly in response to economic, financial, or even geopolitical shocks. i ’ d also like to preemptively address a potential objection to this option. that is, that it may be a “ stealth ” cut to our strong capital levels for the largest banks. i reject that characterization, and it is not supported by the approach i have outlined today. as i ’ ve said, we would maintain our strong current loss - absorbency levels, and, though i have focused on the ability to reduce the ccyb in times of stress, i also would stand ready to increase the ccyb above the new baseline when it was appropriate to do so. indeed, the advantage of a truly flexible capital requirement is for it not only to provide additional resilience during a boom, but also to limit the risk of a pullback in credit supply aggravating an economic downturn. the scb floor option returning to our goals of increasing simplicity, mitigating pro - cyclicality, and maintaining the overall level of loss - absorbency in the system, i would like to advance another equally viable alternative to turning on the ccyb : raising the proposed scb floor from the fixed 2. 5 percent of 4 / 5 bis central bankers'speeches risk - weighted assets to a somewhat higher level — purely for the sake of illustration, let ’ s say 3 percent. using 3 percent as an example, we would give each firm a buffer based on the firm ’ s most recent stress test results, but which must be at least 3 percent. for example, if a firm had a capital ratio decline of 2. 7 percent during the stress tests, its scb would nonetheless be sized at 3 percent, rather than 2. 7 percent. for firms that have stress test results indicating an scb greater than 3 percent, this change would have