prudently manage the bank ’ s risk, since they bear more of the risk of the bank ’ s activities. holistic review of capital standards i initiated a review of capital standards as one of my first actions as vice chair for supervision. this review was focused on capital requirements for large banks with more than $ 100 billion in total assets. capital requirements are multi - layered with different components. a holistic approach is important because the requirements function as a system — each component treats risks and associated capital needs differently, but all components together result in a certain amount of capital required. banks manage their operations with an eye on the entire system, and as such, adjustments to one part of the regime may imply adjustments to another. to that end, over the last nine months, i have engaged with a wide range of parties : policymakers and staff from the federal reserve and other agencies, banks and financial sector groups, public interest groups, members of congress, and academics to get a broad perspective on how the fed ’ s capital standards interact with each other and the result they together achieve. in the midst of this review, we once again learned the for a more in - depth discussion of why bank capital matters, see my speech in december 2022 on this topic : michael s. barr, “ why bank capital matters, ” ( speech at the american enterprise institute, washington, dc, december 1, 2022 ), https : / / www. federalreserve. gov / newsevents / speech / barr20221201a. htm. - 3importance of resilience when a sudden bank run and contagion caused three large banks to fail and we experienced significant stress in the banking system, stemmed only by invocation of the systemic risk exception and creation of an emergency lending facility. this should make us very humble indeed. i reviewed whether changes would be appropriate to better align capital requirements with risk - taking, to help ensure that our banking system is sufficiently resilient to serve its vital role in our economy. any proposed changes would go through the standard notice - and - comment rulemaking process, allowing all interested parties ample time to weigh in on the proposed changes. any final changes to capital requirements would occur with appropriate transition times. i will be pursuing further changes to regulation and supervision in response to the recent banking stress, including how we regulate and supervise liquidity, interest rate risk, and incentive compensation, as well as improving the speed, agility,

the risks posed by different banks engaged in a variety of activities. with respect to stress testing, i believe that the stress capital buffer framework is sound. 3 at the same time, i believe that the stress test should continue to evolve to better capture risk. the exploratory analysis conducted this year demonstrates the capacity of supervisory stress testing to test for a wider range of risks and the value of doing so. any changes to the stress test should be complementary to the changes to the risk - based capital framework i mentioned above. with respect to the other capital buffers — the global systemically important bank ( g - sib ) surcharge 4 and the countercyclical capital buffer ( ccyb ) 5 — i am not recommending fundamental changes. for the g - sib surcharge, i am recommending that we improve the measurement of systemic indicators under the g - sib surcharge framework, reduce “ cliff effects, ” and increase the sensitivity of the surcharge to changes in a bank ’ s risk profile. with respect to the enhanced supplementary leverage ratio ( eslr ), i am not recommending changes to the calibration at this time. with the revisions in risk - based capital requirements i mentioned above, the eslr generally would not act as the binding constraint at the holding company level, where treasury market intermediation occurs. the stress capital buffer framework uses the results of the supervisory stress test to calibrate a risksensitive buffer above a firm ’ s minimum risk - based capital requirements. a firm whose capital ratios are at or below its minimum plus its stress capital buffer requirements and any applicable global systemically important bank ( g - sib ) surcharge and countercyclical capital buffer ( ccyb ) is subject to automatic restrictions on capital distributions. the g - sib surcharge requires a firm that is identified as a global systemically important bank holding company to hold additional capital based on a measure of the firm ’ s systemic risk. the ccyb requires a firm to hold additional capital when systemic vulnerabilities are meaningfully above normal. - 6we will carefully monitor treasury market intermediation, and if problems arise, will consider appropriate policy responses. basel iii endgame an important aspect of my proposals will be to implement the changes to the risk - based capital requirements, referred to as the basel iii endgame, which are intended to ensure that our minimum capital requirements require banks to hold adequate capital