financial institutions were allowed to take on high levels of leverage. this leverage was facilitated by short - term wholesale borrowing, owing in part to market - based vehicles, such as money market mutual funds and asset - backed 2 / 10 bis central bankers'speeches commercial paper programs that allowed the rapid expansion of liquidity transformation outside of the regulated depository sector. finally, a self - reinforcing loop developed, in which all of the factors i have just cited intensified as investors sought ways to gain exposure to the rising prices of assets linked to housing and the financial sector. as a result, securitization and the development of complex derivatives products distributed risk across institutions in ways that were opaque and ultimately destabilizing. in response, policymakers around the world have put in place measures to limit a future buildup of similar vulnerabilities. the united states, through coordinated regulatory action and legislation, moved very rapidly to begin reforming our financial system, and the speed with which our banking system returned to health provides evidence of the effectiveness of that strategy. moreover, u. s. leadership of global efforts through bodies such as the basel committee on banking supervision, the financial stability board ( fsb ), and the group of twenty has contributed to the development of standards that promote financial stability around the world, thereby supporting global growth while protecting the u. s. financial system from adverse developments abroad. preeminent among these domestic and global efforts have been steps to increase the loss - absorbing capacity of banks, regulations to limit both maturity transformation in short - term funding markets and liquidity mismatches within banks, and new authorities to facilitate the resolution of large financial institutions and to subject systemically important firms to more stringent prudential regulation. several important reforms have increased the loss - absorbing capacity of global banks. first, the quantity and quality of capital required relative to risk - weighted assets have been increased substantially. 9 in addition, a simple leverage ratio provides a backstop, reflecting the lesson imparted by past crises that risk weights are imperfect and a minimum amount of equity capital should fund a firm ’ s total assets. moreover, both the risk - weighted and simple leverage requirements are higher for the largest, most systemic firms, which lowers the risk of distress at such firms and encourages them to limit activities that could threaten financial stability. 10 finally, the largest u. s. banks participate in the annual comprehensive capital analysis and review ( ccar ) the stress tests. in addition to contributing to

authorities and tangible steps taken by institutions to adjust their organizational and capital structure in a manner that enhances their resolvability and significantly reduces the problem of too - big - to - fail. the progress evident in regulatory and supervisory metrics has been accompanied by shifts in private - sector assessments that also suggest enhanced financial stability. investors have recognized the progress achieved toward ending too - big - to - fail, and several rating agencies have removed the government support rating uplift that they once accorded to the largest banks. credit default swaps for the large banks also suggest that market participants assign a low probability to the distress of a large u. s. banking firm. market - based assessments of the lossabsorbing capacity of large u. s. banks have moved up in recent years, and market - based measures of equity now lie in the range of book estimates of equity. to be sure, market - based measures may not reflect true risks — they certainly did not in the mid - 2000s — and hence the 4 / 10 bis central bankers'speeches observed improvements should not be overemphasized. 16 but supervisory metrics are not perfect, either, and policymakers and investors should continue to monitor a range of supervisory and market - based indicators of financial system resilience. economic research provides further support for the notion that reforms have made the system safer. studies have demonstrated that higher levels of bank capital mitigate the risk and adverse effects of financial crises. 17 moreover, researchers have highlighted how liquidity regulation supports financial stability by complementing capital regulation. 18 economic models of the resilience of the financial sector — so called top - down stress - testing models — reinforce the message from supervisory stress tests that the riskiness of large banks has diminished over the past decade. 19 similarly, model - based analyses indicate that the risk of adverse fire sale spillovers across banks or broker - dealers have been substantially mitigated. 20 is this safer system supporting growth? i suspect many in this audience would agree with the narrative of my remarks so far : the events of the crisis demanded action, needed reforms were implemented, and these reforms have made the system safer. now — a decade from the onset of the crisis and nearly seven years since the passage of the dodd - frank act and international agreement on the key banking reforms — a new question is being asked : have reforms gone too far, resulting in a financial system that is too burdened to support prudent risk - taking and economic growth