two observations about the international regulatory reform agenda of the last few years, along with some implications of those observations for desirable institutional changes. the first observation is that, although there are exceptions, the output of this agenda has largely consisted of what are essentially regulatory rules, intended to be applied to firms through national law. second, most of these rules are being generated, or at least reviewed, within an overlapping set of organizations and arrangements – the basel committee, iosco, the fsb, the g - 20, and a veritable potpourri of committees functioning under the umbrella of the bank for international settlements ( bis ). these rather mundane observations lead, i think, to some rather important institutional implications. it goes without saying that the benefits of international regulatory rules will be realized only if they are implemented rigorously and consistently across jurisdictions. not only must they be incorporated into national legislation or regulations effectively, they must also be rigorously enforced by national supervisors. we do not need formal dispute mechanisms similar to those in the world trade organization, which could undermine supervisory cooperation, but we do need effective, collaborative monitoring mechanisms administered by the supervisors themselves and reported to the public. so, for example, the federal reserve has suggested that the basel committee go beyond the important function of reviewing legal implementation and also monitor how capital standards are applied within banks. while a variety of methods could be used, we are particularly interested in establishing international validation teams to verify methodologies used at individual banks on such matters as the risk - weighting of trading assets. even as the basel committee should monitor compliance with the standards it establishes, it must not lose sight of the importance of supervisory cooperation in pursuit of the shared goal of a stable international financial system. the focus on rules and standards over the last few years has been both understandable and necessary, but the basel committee should not be purely a negotiating forum. the activities of the basel committee in the 1970s and early 1980s were largely informal, involving the sharing of supervisory perspectives and, perhaps more importantly, the establishment of relationships that could be drawn upon when crossborder supervisory problems arose. i regret that these functions have been substantially attenuated over the years. with the increased membership and expanded scope of activities, a return to early practice is not feasible. but other ways must be found to foster the common goals of committee members in promoting safe and sound financial systems. the overlapping, sometimes competing, activities of all the international committees and arrangements is, like the recent emphasis on rules,

daniel k tarullo : the international agenda for financial regulation speech by mr daniel k tarullo, member of the board of governors of the federal reserve system, at the american bar association banking law committee fall meeting, washington dc, 4 november 2011. * * * long before the recent financial crisis, banking regulation had acquired an important international dimension. the crisis renewed attention to the interconnectedness among national financial markets. in its aftermath, accordingly, the international focus on banking regulation has grown even more extensive. today i will discuss three subjects germane to the increasingly significant international regulatory agenda. first are the steps needed to complete the reform agenda on capital and liquidity standards, including some implementation issues in the united states. second are areas that i believe should be priorities for international work in 2012 – cross - border resolution of financial firms, wholesale funding markets, and over - the - counter ( otc ) derivatives reform. and third are some institutional changes that will be required in the relevant international bodies to assure that they fulfill their promise of promoting a safe and efficient international financial system. before turning to these topics, i think it important to state the goals that should inform u. s. involvement in international financial regulatory efforts. in recognition of the fact that financial distress can quickly and dramatically cross national borders, we seek to protect our own financial system by promoting the adoption of strong, common regulatory standards and effective supervisory practices for large financial firms and important financial market infrastructures around the world. such standards and practices can also help prevent major competitive disadvantage for u. s. firms. completing the agenda on minimum capital and liquidity standards strong capital and liquidity standards are central to these goals and to the overall reform agenda for financial regulation. the crisis showed that liquidity problems can be an independent source of severe stress, perhaps even for firms that might otherwise have remained solvent. but it also confirmed that capital standards themselves had been wholly inadequate in a number of respects : required capital levels were much too low, particularly trading book capital requirements. in evaluating the condition of financial firms at the height of the crisis, markets focused on common equity ratios and virtually ignored the tier 1 ratio enshrined by basel i and basel ii. moreover, markets and supervisors both used a much more forward - looking capital calculation than under prevailing regulatory requirements – subtracting losses that they estimated would be sustained in an adverse scenario to determine whether firms would have enough capital to remain viable financial intermediaries. finally, the significant interconnectedness