market funds was a step in the right direction, but the combination of fixed net asset value, the lack of loss absorption capacity, and the demonstrated propensity for institutional investors to run together make clear that chairman schapiro is right to call for additional measures. as to the tri - party repo market, there are several important concerns. a major vulnerability lies in the large amount of intraday credit extended by clearing banks on a daily basis. an industry initiative to address the issue led to some important operational improvements to the tri - party market, but, to be frank, fell short of dealing comprehensively with this problem. so it now falls to the regulatory agencies to take appropriate regulatory and supervisory measures to mitigate these and other risks. conclusion it is sobering to recognize that, more than four years after the failure of bear stearns began the acute phase of the financial crisis, so much remains to be done – in implementing reforms that have already been developed, in modifying or supplementing these reforms as needed, and in fashioning a reform program to address shadow banking concerns. for some time my concern has been that the momentum generated during the crisis will wane or be redirected to other issues before reforms have been completed. as you can tell from my remarks today, this remains a very real concern. still, i would like to conclude on a somewhat different – though i think not inconsistent – note. almost by definition, prudential reforms are injunctions to firms or markets about what they should not do. even affirmatively stated requirements to maintain specified capital ratios can be understood as prohibitions upon extending more credit, purchasing another instrument, or distributing a dividend unless the minimum ratio would be maintained. prohibition and constraint are quite appropriately at the center of a regulatory system. yet the policies that underlie regulation should embody a more affirmative set of social goals. one obvious example is the housing market, which remains depressed today, although there are at last some signs of gradual improvement. as has been widely observed, mortgages are not available to many potential homebuyers who appear creditworthy by most reasonable measures, despite the fact that home affordability judged by traditional measures is greater than at any time in decades. the flawed mortgage securitization system that provided too much financing on too lax terms has been eliminated or constrained. and important steps have been taken to protect consumers from unfair and deceptive practices seen in the last decade. bis central bankers ’ speeches but having addressed

hold a put option because of a belief the government would bail out a large firm in order to preclude contagion from a disorderly failure. the fdic has already done considerable work in developing an approach to its potential exercise of orderly liquidation authority. other home countries of globally significant financial firms are working toward enacting their own resolution regimes. but even with comparable regimes in place around the world, a number of significant cross - border issues will need to be addressed, such as the effect on certain contractual obligations of a firm in a host country when the home country places that firm into resolution. moreover, for the resolution mechanism to be credible ex ante and effective ex post, the capital and liability structure of major firms must be able to absorb losses without either threatening short - term funding liabilities or necessitating injections of capital from the government. in this regard, it is useful to remember that the original rationale for basel ’ s two tiers of capital requirements was that tier 1 capital would be available to absorb losses so as to allow the firm to continue as a going concern, while the additional tier 2 capital would be available to absorb losses if the firm nonetheless failed. as i have already noted, the various basel frameworks have materially strengthened both the quantity and quality of required tier 1 capital. now we also need to attend to the characteristics and size of the components of a firm ’ s balance sheet that would be available to a resolution authority for loss absorption or conversion to equity. a good starting point will be the idea of using long - term unsecured debt, with appropriately tailored characteristics, as a gone - concern complement to going - concern common equity requirements. bis central bankers ’ speeches a fifth reform is a proposed set of quantitative liquidity requirements. as seen during the crisis, a financial firm – particularly one with significant amounts of short - term funding – can become illiquid before it becomes insolvent, as creditors run in the face of uncertainty about the firm ’ s solvency. while higher levels and quality of capital can mitigate some of this risk, it was widely agreed that quantitative liquidity requirements should be developed. the basel committee generated two proposals : one, the liquidity coverage ratio ( lcr ) with a 30 - day timeframe ; the other, the net stable funding ratio ( nsfr ) with a one - year timeframe. however, insofar as this was the first - ever effort to specify such requirements, the governors