provide some protection against the fire sale externalities we saw during the crisis : forced asset sales, falling asset prices, leading to rising capital losses at other firms that led, in turn, to further funding difficulties, asset sales and so on. on the supervisory side, firms are now increasingly being evaluated on a cross - industry basis in order to identify best practices and to identify laggards that need to upgrade areas such as mis, governance, model validation, and risk management practices. activity restrictions are another potential means to reduce the risk of failure. the biggest initiative in this area is the volcker rule. by limiting proprietary trading activities, the volcker rules seeks to reduce trading risk and the likelihood of failure. earlier this month, the financial stability board published a list of 28 global systemically important banks or g - sibs that will be subject to capital surcharges. the firms were arrayed in four buckets, with an increasing capital surcharge as a percent of risk - weighted assets imposed as one ascended upward to the higher buckets. bis central bankers ’ speeches in addition, the financial stability oversight council ( fsoc ) is in the process of identifying those non - bank financial firms that are systemically important. these firms will be subject to tougher prudential standards and supervisory oversight by the federal reserve. some argue that this designation process merely creates more tbtf firms. i see it differently. the system risk externalities do not depend on whether we label them systemic or not. if these risks are present, then we should face up to the issue with tougher standards and enhanced supervisory oversight rather than leave the issue unaddressed. this has to be a superior approach relative to pretending these firms could not be tbtf and the problem doesn ’ t exist. policy measures to reduce the adverse systemic consequences from failure because no plausible level of capital and liquidity standards will be sufficient to reduce the probability of failure to zero, it also makes sense to work on the other major margin – to reduce the cost of the failure of a large, complex financial firm. we can do this by making changes so that such failures are less likely to impair the functioning of the broader financial system. in this area, although many initiatives are in train, i would conclude that we are still very far from where we need to be. one simple but meaningful step that already has been enacted is to put a brake on the ability of the largest and most complex firms to become even larger and

on a post - trade basis. this should make the otc derivatives market more transparent and, thus, reduce the risk of contagion. the way forward we have made some progress on the tbtf problem, particularly in reducing the likelihood that a large complex firm will reach the point of distress at which society faces serious costs. but we have a considerable ways to go to finish the job and reduce to tolerable levels the social costs associated with such failures. further international coordination is almost certainly going to be necessary to ensure that bankruptcy regimes interact in ways that minimize negative externalities. at home we also need to ensure that different authorities and resolution regimes operate in a mutually consistent manner. in particular, we may need to revisit the sipc regime that governs securities firms in bankruptcy. at present, the bankruptcy of a securities firm is very disruptive because the claims of all counterparties are typically frozen for a considerable period and the value of these claims is not easy to ascertain or monetize quickly. as i have argued above, we shouldn ’ t focus on solving tbtf exclusively at the level of the individual firm. we need significant changes in market structures and practices as well in order to have a financial system in which the key players can fail without big social costs. we also must continue to ask ourselves the question of whether the steps in train go far enough. for example, one could make a good case that the capital surcharge for systemically important firms should be higher than that contemplated by the basel committee. of course, such a judgment depends on how much other policies succeed in reducing the negative externalities their failure would generate. critics of our approach believe it would be better to just break up firms deemed tbtf now – perhaps through legislation requiring the separation of retail banking and capital markets activities or by imposing size restrictions that require firms to shrink dramatically from their current scale. my own view is that while this could yet prove necessary, it is premature to give up on the current approach : changing the incentives facing large and complex firms, forcing them to become more resilient, and making the financial system more robust to their failure. in my opinion, there are shortcomings to reimposing glass - steagall - type activity restrictions or strict size limits. with respect to glass - steagall, it is not obvious to me that the pairing of securities and banking businesses was an important causal element behind the crisis. in fact, independent investment banks were much