of the system as a whole rather than individual ccps. the european securities and markets authority is already expanding its supervisory stress testing exercise to incorporate liquidity risk. a similar exercise here in the united states should be seriously considered. ensuring efficiency the industry collectively needs to ensure that the liquidity flows involved in central clearing are handled efficiently and in a way that minimizes potential disruption. as i noted, there was some concern about the size of margin calls following brexit, and certain ccps have taken measures to address this. for example, lch has subsequently made changes to its intraday margining procedures in an effort to reduce liquidity pressures on its clearing members, allowing them to offset losses on their client accounts with gains on the house account. 12 “ supervisory stress test of clearinghouses, ” commodity futures trading commission, november 2016, www. cftc. gov / idc / groups / public / @ newsroom / documents / file / cftcstresstest111516. pdf. lch has also moved forward by one hour the timing of the last intraday margin call and made procedural changes that will speed up the processing of the call, which should also help with payment flows. other ccps are also actively engaged in efforts to increase their efficiency. ficc is looking at potential solutions using distributed ledger technology to clear both legs of overnight repo trades, which could allow for greater netting opportunities and thereby reduce potential liquidity needs. 13 several ccps are also looking at ways to expand central clearing to directly include more buy - side firms, which could also offer greater netting opportunities. doing so could also offer new sources of liquidity if the new entrants are able to take part in the ccp ’ s committed liquidity arrangements. diversification of sources of liquidity would offer tangible benefits - - ccps would avoid relying on the same limited set of clearing members for all of their liquidity needs. as one example, the options clearing corporation established an innovative pre - funded, committed repurchase facility with a leading pension fund. as regulators, we should encourage innovations that increase clearing efficiency and reduce liquidity risks where they meet the pfmi and our supervisory expectations. central bank accounts as i discussed earlier, ccps have a complicated set of decisions on how and where to hold their cash balances. title viii of the dodd - frank act authorized the federal reserve to establish accounts for dfmus, and we now have accounts with each of the eight institutions that

funding advantages it confers are plentiful. but i believe that it is so ingrained in our thinking that we sometimes take it for granted. think how obvious the subsidy would be if it involved another industry - - for example, if the government guaranteed that commercial paper holders of the automobile industry would be repaid in full. to complete the other strands of the safety net - - the discount window and the payment system - - let us assume that automobile companies experiencing liquidity problems could borrow from the federal reserve for the purpose of repaying commercial paper, and that they are able to achieve risk - free settlement. the effects of extending such a subsidy are not difficult to imagine. automakers would find it very easy to place their commercial paper, and would be able to pay a below - market yield. and, to the extent the hypothetical allowed, i would not be surprised to see automakers use this funding advantage to enter other businesses. so it is with banks - - and with subsidiaries of banks. regulators can limit a bank ’ s ability to subsidize its subsidiary through loans by capping their amount or regulating the rates the subsidiary must pay. but although one can limit the aggregate investment a bank can make in its subsidiary by requiring that such injections be deducted from the capital of the bank, the equity investment in the subsidiary is still funded from subsidized resources, and that subsidy transfer cannot be eliminated. thus, both analytically and practically, i think it difficult to deny that banks and their subsidiaries benefit from a federal subsidy, and benefit in ways that an affiliate of the bank does not. nevertheless, some argue that a parent - subsidiary structure is more efficient than a sibling structure, and must be allowed for a broader range of activities. but in light of the recent regulatory changes that i have described, i believe that this argument is now questionable. a bank and an affiliate can now avoid a redundant work force and duplication of effort by having employees serve in a dual capacity, or by allowing reporting lines to cross. for example, a common back office or treasury can be maintained. furthermore, the two companies can market their products jointly to both retail and corporate customers. with these regulatory changes, banks and bank holding companies have opportunities to make considerable adjustments to their organizational structures and operating procedures as well as to offer new products to customers in new ways. conclusion let me conclude by pointing out that the legislative debate has only just begun. opinions are still developing, new ideas are