for release on delivery 10 : 00 a. m. edt july 10, 2023 holistic capital review remarks by michael s. barr vice chair for supervision board of governors of the federal reserve system at the bipartisan policy center washington dc july 10, 2023 thank you to the bipartisan policy center for the opportunity to speak today. i ’ m here to report on my holistic review of capital for large banks and to outline steps that i believe are appropriate to update our capital standards so that banks can continue to serve our communities, households, and businesses. 1 the review was a top priority because capital is fundamental to safety and soundness. i approached the task with humility. we need to be skeptical about the ability of bank managers or regulators to anticipate all emerging risks. events over the past few months have only reinforced the need for humility and skepticism, and for an approach that makes banks resilient to both familiar and unanticipated risks. our dynamic financial system is complex and constantly evolving. regulators and bank managers are limited in our ability to comprehensively identify risks and to measure them. we cannot fully appreciate how a specific vulnerability can interact with other vulnerabilities to amplify and propagate risk in the face of a shock, or multiple shocks. it is extremely difficult to identify shocks in advance. and we also cannot fully predict how firms and markets adapt to changes in the environment or to the behavior of regulators or other participants. so, instead of trying to design rules to address every conceivable risk, regulators must focus broadly on resilience — ensuring that banks and the financial system can withstand challenges, wherever they emerge and however they are transmitted through the system. fortunately, there is a component of bank funding — equity capital — that is the views i express here are my own, and not those of the board of governors of the federal reserve system or the federal open market committee. - 2well suited to building resilience. 2 banks rely on both debt and capital to fund loans and other assets, but capital is what allows the bank to take a loss and keep on operating. the beauty of capital is that it doesn ’ t care about the source of the loss. whatever the vulnerability or the shock, capital is able to help absorb the resulting loss and, if sufficient, allow the bank to keep serving its critical role in the economy. higher levels of capital also provide incentives to a bank ’ s managers and shareholders to

of a single entity in one part of the world on all other connected parties illustrate the tremendous importance of sound and effective risk management in today ’ s financial world. due to the inter - connected economies around the world, asia has not been isolated from the spill - over effects of the global financial crisis. the western economies continued to be bogged down by slow and hesitant recovery with weak economic growth and high unemployment rates. emerging economies, particularly in asia, however, have been resilient through these financial challenges. this is attributable to various policies and practices adopted in the region following the lessons learned from the asian financial crisis in 1997 – 98. on the local front, malaysia has been largely successful in dealing with the challenges brought about by the global crisis. the economy has recovered beginning from the fourth quarter of 2009. prompt government responses and initiatives, as well as the existence of strong macroeconomic fundamentals and a sound financial system are the principal factors. in the first quarter of 2010, most asian economies registered robust growth, with malaysia recording a 10. 1 % real gdp growth. another recent measure of malaysia ’ s resilience is its rating in the imd world competitiveness yearbook 2010. malaysia ’ s global competitiveness ranking improved significantly from 18th place in 2009 to 10th place in 2010, out of 58 economies. malaysia has successfully issued a us $ 1. 25 billion sovereign sukuk ( islamic bonds ) last friday with large international demand even during a period of volatile financial markets. this further attests to malaysia ’ s success as well as international acceptance of malaysia ’ s standing as a major international islamic financial centre. although malaysia fared relatively well during this crisis, we should not be complacent. we should leverage on the lessons learnt from this and the late 1990s crises to improve our resilience to any future shocks. there is at present obvious optimism among financial institutions following the improved economic outlook and market sentiment. it is crucial to ensure, however, that this does not result in unchecked increases in risk appetite or compromises the quality of risk management practices. what was once a “ black swan ” event has increasingly become more common due to the high inter - linkages between international economies. as such, we need to be vigilant and ensure all potential risks are addressed and comprehensive risk management measures are adopted, both at the macro and micro levels of the economy. regulatory reforms in line with risk management let me turn now to the regulatory reforms in line