janet l yellen : regulatory landscapes – a us perspective speech by ms janet l yellen, vice chair of the board of governors of the federal reserve system, at the international monetary conference, shanghai, china, 2 june 2013. * * * thank you. i don ’ t want to delay what i expect to be a lively discussion, so my opening remarks will be brief. i ’ ll summarize the considerable progress since 2008 to make the global financial system more resilient, and then offer my views on what more should be done. a brief retrospective on financial regulatory progress it ’ s useful to divide the regulatory reform work of the past few years into three categories : strengthening the basic bank regulatory framework, reducing the threat to financial stability posed by systemically important financial institutions ( sifis ), and strengthening core financial markets and infrastructure. bank regulatory basics the financial crisis revealed that banking firms around the world did not have enough highquality capital to absorb losses during periods of severe stress. the basel iii reforms promulgated in 2010 by the basel committee on banking supervision will increase the amount of regulatory capital required to be held by global banking firms and improve the loss - absorbing quality of that capital. u. s. banking agencies issued proposals last summer to implement basel iii ’ s capital reforms, have reviewed comments, and are preparing the final regulation. we also were reminded during the crisis that a banking firm – particularly one with significant amounts of short - term wholesale funding – can become illiquid before it becomes insolvent, as creditors run in the face of uncertainty about the firm ’ s viability. the basel committee generated two liquidity standards to mitigate these risks : a liquidity coverage ratio with a 30 - day time horizon and a net stable funding ratio ( nsfr ) with a one - year time horizon. the u. s. banking agencies expect to issue a proposal to implement the liquidity coverage ratio later this year, and we are working with the basel committee now to review the structure and parameters of the nsfr. special measures for sifis the financial crisis also made clear that international bank rules should focus more on the potential threat to financial stability posed by sifis. in this arena, the efforts of the federal reserve and the global regulatory community have focused principally on ( 1 ) producing stronger regulations to reduce the probability of default of such firms to levels that are meaningfully below those for less systemically important financial firms, and ( 2 ) creating a resolution

go beyond the capital surcharges put forward by the basel committee. as they suggest, fully offsetting any remaining too - big - to - fail subsidies and forcing full internalization of the social costs of a sifi failure may require either a steeper capital surcharge curve or some other mechanism for requiring that additional capital be held by firms that potentially pose the greatest risks to financial stability. improving sifi resolvability there are at least three key obstacles that policymakers must overcome to maximize the prospects for an orderly resolution of a global financial firm. first, each major jurisdiction must adopt a statutory resolution regime for financial firms consistent with the fsb ’ s key attributes. 1 the united states has been a leader in this regard, and i hope that other countries that have not yet adopted a compliant resolution regime will do so promptly. second, policymakers need to ensure that all sifis maintain a sufficient amount of total prefailure and post - failure loss absorption capacity. in consultation with the federal deposit insurance corporation, the federal reserve is considering the merits of a regulatory requirement that the largest, most complex u. s. banking firms maintain a minimum amount of long - term unsecured debt outstanding. such a requirement could enhance the prospects for an orderly sifi resolution. switzerland, the united kingdom, and the european union are moving forward on similar requirements, and it may be useful to work toward an international agreement on minimum total loss absorbency requirements for global sifis. third, it is time for policymakers to find concrete and credible solutions to the thorny cross - border obstacles that impede the orderly resolution of a globally systemic financial firm. reducing systemic risk in the shadow banking system important as banking reforms may be, it is worth recalling that the trigger for the acute phase of the financial crisis was the rapid unwinding of large amounts of short - term wholesale funding that had been made available to highly leveraged and / or maturity - transforming financial firms that were not subject to consolidated prudential supervision. many of the key problems related to shadow banking and their potential solutions are still being debated domestically and internationally. but i believe the path forward is reasonably clear. we need to increase the transparency of shadow banking markets so that authorities can monitor for signs of excessive leverage and unstable maturity transformation outside regulated banks. we also need to take further steps to reduce the risk of runs on money market mutual funds. in addition, we need to further ameliorate risks in the