william c dudley : financial regulation nine years on from the gfc where do we stand? remarks by mr william c dudley, president and chief executive officer of the federal reserve bank of new york, on the panel " financial regulation nine years on from the gfc - where do we stand? ", at the g30 ’ s 76th plenary session, federal reserve bank of new york, new york city, 3 december 2016. * * * beverly hirtle, antoine martin, susan mclaughlin and joseph tracy assisted in preparing these remarks. thank you for the opportunity to participate in this panel discussion. as always, what i have to say reflects my own views and not necessarily those of the federal open market committee or the federal reserve system. in assessing where we are eight years after the financial crisis, i would make three broad observations. first, we have made considerable progress in bolstering the safety and soundness of the global financial system. in the u. s., which was the epicenter of the crisis, the risk of a failure of a systemically important financial firm has declined considerably. second, although significant progress has been made toward ending “ too big to fail, ” there is still much more to do. while the risk of failure of a global systemically important financial institution has diminished, it has not been eliminated. without a well - functioning resolution process, the consequences of such a failure could still be catastrophic. much headway has been made in the u. s. in developing a single point of entry resolution regime with a layer of total loss - absorbing capacity ( tlac ) that would facilitate recapitalization and enable an orderly resolution. however, significant challenges remain, especially on managing resolution on a cross - border basis. third, bank leaders still have much to do to rebuild the trustworthiness of their industry. long after the financial crisis, conduct failures have persisted. we need financial firms to foster cultures that are intolerant of bad conduct and that are attentive to incentive structures that may encourage such behaviors. so, let me begin with the good news. the u. s. financial system is much more resilient now than it was a decade ago on the eve of the financial crisis. this progress reflects a number of initiatives ― some focused on the ability of firms to absorb shocks, and others oriented at reducing structural vulnerabilities within the financial system that spanned the activities of firms and their counterparties. changes made to capital and

unsustainable housing boom. the turmoil in financial markets that was unleashed when the boom collapsed subsequently forced the u. s. and other countries to undergo significant adjustments. these adjustments were often sudden. they transmitted large shocks across the global economy. these shocks, in turn, necessitated other adjustments in trade, investment, and in financial markets elsewhere. more generally, we know that the global economy operates under an important constraint – the sum of trade balances around the world, properly measured, must add up to zero. when one country follows policies that are designed to increase exports, there must be an offsetting adjustment elsewhere – either higher imports or fewer exports by another country. similarly, there is the same adding up constraint in terms of the financial flows that accompany trade and investment on the capital account – current account balances around the world – again properly measured – must add up to zero. what this means in practical terms is that the outcomes for economic activity and capital flows for any individual country depend not only on the public policy and private decisions made within that country, but also on policies and mix of activities pursued in other countries. bis central bankers ’ speeches for example, for germany to have a large trade surplus with the rest of europe, other european countries must run trade deficits. and if germany runs such surpluses it must accumulate large financial claims on the other countries. or, if the u. s. has an unsustainably high level of consumption, the adjustment to a lower, more sustainable level must be offset by greater investment and exports if the u. s. economy is to be able to operate close to full employment. the fact that it takes ( at least ) two to tango to make these types of adjustments is just another way of saying that our economies are interconnected. in order for the u. s. to reduce its dependence on consumption and to increase its exports, there need to be offsetting adjustments in other countries, such as china. thus, the key issue to consider in crafting internationally coordinated macroeconomic policy is not whether these adjustments will ultimately take place. they will take place because they have to take place. instead, the issue for policymakers is whether the policies we put in place will allow adjustments to occur in a way that is consistent with a stable global economy, high levels of employment, and low inflation. at times, the situation is akin to the prisoner ’ s dilemma – a non - cooperative approach will lead to inferior results for both players compared to