jerome h powell : international financial regulatory reform speech by mr jerome h powell, member of the board of governors of the federal reserve system, at the university club, new york, 2 july 2013. * * * thank you so much for inviting me to speak today. 1 i join others in thanking mr. stephan for his service, and in welcoming ms. stirbock to her new role as chief representative of the deutsche bundesbank in the united states. i look forward to working with both of you, and with your colleagues, in the coming years. the federal reserve places great importance on our relations with the bundesbank. few such relationships have been as important, over the decades, in promoting financial stability and prosperity around the world. governments, central bankers, and financial regulators labor today in the long shadow cast by the global financial crisis, and that likely will remain the case for many years. against that background, i will touch briefly on fiscal and monetary policy here in the united states, before turning to financial regulatory issues. it has long been clear that, starting in this decade, the united states would begin to face longer - term fiscal challenges due to the aging of our population and our high and fast - rising per capita health - care costs. over the next 20 years, it is projected that the ratio of our retired elderly to our working - age population will increase sharply from about 23 percent to about 36 percent. and, as you surely know, our per capita health care costs are far higher than those of other advanced economies, and have risen over time at a faster pace than per capita income. the combination of these two factors will put the u. s. federal budget on an unsustainable path if appropriate measures are not taken. at the end of 2007, just prior to the onset of the last recession, the united states had federal government debt equal to about 36 percent of the size of our annual gross domestic product ( gdp ) – a moderate level. since 2007, and largely as a consequence of the recession and policy actions to help alleviate its effects, the u. s. federal government ’ s debt - to - gdp ratio has increased to around 75 percent. it is projected to remain near this level for the remainder of the decade under current federal budget policies. this high level of federal government debt leaves u. s. policymakers with less “ fiscal space ” than may be required to deal with expected increases in retirement and health - care costs, or with unanti

equity of a surviving entity. this approach would have the effect of concentrating the firm - wide losses on the parent company ’ s private sector equity holders and creditors. the spoe approach places a high priority on what your own president weidmann recently described as “ the principle of liability ”, meaning that those who benefit should also bear the costs. perhaps the greatest challenge for the resolution of a systemic global bank is the possibility that public or private actors in different countries might take local actions that would cause the overall resolution to spin out of control. creditors and counterparties of solvent operating bis central bankers ’ speeches subsidiaries might rush for the exit if they are unsure of their status. as a subsidiary comes under increasing stress, authorities might preemptively ring - fence local assets. the process of resolution will need to be fully worked out and understood beforehand by market participants, regulatory authorities, and the general public. it will be absolutely essential to build trust among all parties, and especially between regulatory authorities. much remains to be done in eliminating “ too - big - to - fail ”. the federal reserve is considering a requirement that systemic institutions maintain sufficient long - term debt at the parent company level to absorb losses and recapitalize operating subsidiaries in the event of failure. we expect to propose such a requirement later this year. i share the view expressed recently by several of my board colleagues that the work of large bank resolution is not complete, and that further measures may be necessary. no one should doubt that the federal reserve is committed to completing this project. reaching agreement on a cross - border resolution process will be challenging. our financial services industries and our economies differ in many ways. but we have a shared interest in financial stability, in reducing moral hazard, and in protecting taxpayers. on that note, i will briefly discuss the fed ’ s proposal for oversight of foreign banks operating in the united states, which carries out a mandate from the congress under the dodd - frank wall street reform and consumer protection act. 22 our proposal represents a targeted set of adjustments aimed at reducing the risks posed by the u. s. operations of large foreign banks to u. s. financial stability that were revealed during, and in the aftermath of, the recent financial crisis. the proposal is not intended to create a disadvantage for foreign banks in the u. s. market. rather, the proposal is part of a larger set of regulatory reforms that substantially raises standards for all banking organizations operating in the united states and aims to achieve the goals