was enacted in july 2010. the so - called basel 2. 5 agreement, which strengthened the market risk capital requirements of basel ii, had already been finished. just a few months after the dodd - frank act was enacted, agreement was reached on the basel iii reforms, which require improvement of the quality of regulatory capital, an increase in the quantity of minimum required capital, maintenance of a capital conservation buffer, and – for the first time internationally – compliance with a minimum leverage ratio. in the coming months, the banking agencies will be finalizing regulations to implement basel 2. 5 in the united states and will be proposing regulations to implement basel iii in the united states. bis central bankers ’ speeches with respect to macroprudential capital regulation, section 165 of the dodd - frank act mandated that the board establish enhanced risk - based capital standards for large bank holding companies that would be graduated based on the relative systemic importance of those companies. consistent with this requirement, we espoused proposals in the basel committee for capital surcharges on the world ’ s largest, most interconnected banking organizations based on their global systemic importance. last year, agreement was reached on a framework for such surcharges, to be implemented during the same transition period applicable to basel iii. the board ’ s aim has been to fashion the enhanced capital requirements of section 165 and the associated international framework in a simultaneous and congruent manner. both the dodd - frank act provision and the basel systemic surcharge framework are motivated by the fact that the failure of a systemically important firm would have dramatically greater negative consequences on the financial system and the economy than the failure of other firms. stricter capital requirements on systemically important firms should also have the benefit of helping offset any funding advantage these firms derive from their perceived status as too - big - to - fail and providing an incentive for such firms to reduce their systemic footprint. if the benefits of all these improvements to existing capital requirements are to be realized, it is crucial that capital standards be not only agreed upon globally, but also implemented consistently across jurisdictional boundaries. we have strongly supported efforts within the basel committee to monitor implementation – not only in the laws and regulations of member countries, but also at the level of individual large banking organizations, including an assessment of the consistency of risk - weighting practices by banks. we look forward to the evolution of the basel committee ’ s new plans for conducting this monitoring exercise, which are considerably more ambitious than any pursued in the past

the federal open market committee ( fomc ) as a consumer of model - based forecasts and analysis suggests that work remains to be done on both fronts - - and, in particular, on meeting both objectives with the same model. as regards the first property, the conceptual - - albeit informal - - framework that many policymakers like to use is largely " bottom up " and features costs and expectations. it starts with wages and the prices of other inputs into production, and after taking into account productivity, it sees prices set as a markup over unit costs. wage determination plays a key role in this framework and is influenced by such factors as inflation expectations, productivity, the views i express here are my own and not necessarily those of other members of the federal open market committee. flint brayton and david reifschneider, of the board's staff, contributed to these remarks. 1 / 4 and labor market slack ; the markup, too, is important because it varies over time depending on changes in the competitive environment, expected future costs, and other factors. at first glance, the empirical structural models currently favored in academic research and discussed at this conference - - such as the new keynesian phillips curve - - appear to conform to the informal policymaker model : expectations formation is dealt with formally, and price inflation, at least in some empirical representations, is directly tied to measures of unit labor costs. on closer inspection, however, one sees that the specifications of these models typically ignore important factors bearing on the inflation outlook. one category of neglected factors is price shocks - - changes in the levels of key inputs, such as energy or imports. policymakers spend a great deal of time discussing the circumstances under which such shocks can lead to persistent changes in the rate of inflation. yet, despite their historical importance for aggregate inflation, energy prices, for example, are controlled for in only one of the structural models discussed at this conference. and this importance is not necessarily a concern of the past : prices for oil and natural gas have soared since 2003, directly boosting the energy component of the consumer price index as well as raising the production costs, and ultimately to at least some degree the prices, of non - energy goods and services. as a policymaker, i can assure you that any model of inflation that did not take account of these effects, and how they might or might not affect ongoing rates of inflation, would have been of little practical use to the fomc over the past