more comprehensive discussion of recent changes in the regulatory framework, see daniel k. tarullo ( 2013 ), “ evaluating progress in regulatory reforms to promote financial stability, ” speech delivered at the peterson institute for international economics, washington, may 3. see stanley fischer ( 1999 ), “ on the need for an international lender of last resort, ” journal of economic perspectives, vol. 13 ( fall ), pp. 85 – 104. bis central bankers ’ speeches activities, can directly limit risk - taking. second, through the use of appropriate carrots and sticks, regulators can enlist the private sector in monitoring risk - taking. for example, the federal reserve ’ s comprehensive capital analysis and review ( ccar ) process, the descendant of the bank stress tests of 2009, requires not only that large financial institutions have sufficient capital to weather extreme shocks, but also that they demonstrate that their internal risk - management systems are effective. 9 in addition, the results of the stress - test portion of ccar are publicly disclosed, providing investors and analysts information they need to assess banks ’ financial strength. of course, market discipline can only limit moral hazard to the extent that debt and equity holders believe that, in the event of distress, they will bear costs. in the crisis, the absence of an adequate resolution process for dealing with a failing sifi left policymakers with only the terrible choices of a bailout or allowing a potentially destabilizing collapse. the dodd - frank act, under the orderly liquidation authority in title ii, created an alternative resolution mechanism for sifis that takes into account both the need, for moral hazard reasons, to impose costs on the creditors of failing firms and the need to protect financial stability ; the fdic, with the cooperation of the federal reserve, has been hard at work fleshing out this authority. 10 a credible resolution mechanism for systemically important firms will be important for reducing uncertainty, enhancing market discipline, and reducing moral hazard. our continuing challenge is to make financial crises far less likely and, if they happen, far less costly. the task is complicated by the reality that every financial panic has its own unique features that depend on a particular historical context and the details of the institutional setting. but, as stan fischer has done with unusual skill throughout his career, one can, by stripping away the idiosyncratic aspects of individual crises, hope to reveal the common elements. in 1907, no one had ever heard of an asset - backed security, and a single

far more diversified today than in the past, so that brexit is just one factor among many in determining overall economic performance. still, we view brexit as a major downside risk for the irish economy and will be closely monitoring developments in the uk economy as the full impact of brexit takes hold. let me now turn to the primary goal of my speech, which is to discuss the potential implications of brexit for the configuration of the european financial system, with a primary focus on the euro area. if the uk - eu negotiations deliver an agreement that effectively preserves the single passport for uk - resident entities selling into the eu, the net impact of brexit on the structure of the european financial system might be quite minor. however, in scenarios in which uk - resident firms are no longer treated as equivalent to eu firms for regulatory purposes, it is likely that significant migration of financial activity from the uk to the eu will occur. in particular, it is plausible that a larger fraction of trade in euro - denominated financial instruments will take place inside the euro area, with ancillary implications for the location of financial lawyers, professional services firms, central counterparties, clearing services and settlement services. in order to more easily meet regulatory requirements, there may also be shifts in the organisation of the banking groups. in addition, we may expect to see non - eu banks looking to set up subsidiaries in the eu and eu - resident banks possibly converting uk branches into subsidiaries. 1 / 2 bis central bankers'speeches in the post - brexit environment, it is unlikely that financial activity will cluster in a single location in the euro area, since no individual location offers a close substitute to london. an open question is whether the decentralisation of the european financial system will impose significant efficiency costs. once a location is established as a dominant financial centre, there are many selfreinforcing factors that help it to maintain a hegemonic position. most obviously, a deep labour market for financial - sector workers and a localised stock of intangible financial knowledge are highly attractive both for new financial firms and new entrants to the labour market. however, if a shock fundamentally disrupts this equilibrium configuration, it does not follow that a new dominant location will inevitably emerge, since there also countervailing factors that work against the concentration of activity in a single location. this point is especially relevant in the context of the euro area, given the diverse characteristics of its