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regulators raised large bank capital requirements significantly in the wake of the global financial
crisis. While there could be benefits of still higher capital, as always we must also consider the
potential costs. This is a difficult balance to strike, and striking it will require public input and
thoughtful deliberation.
High levels of capital are essential to enable banks to continue to lend to households and
businesses and conduct financial intermediation, even in times of severe stress. But raising
capital requirements also increases the cost of, and reduces access to, credit. And the proposed
very large increase in risk-weighted assets for market risk overall requires us to assess the risk
that large U.S. banks could reduce their activities in this area, threatening a decline in liquidity in
critical markets and a movement of some of these activities into the shadow banking sector.
Second, the proposal exceeds what is required by the Basel agreement, and exceeds as
well what we know of plans for implementation by other large jurisdictions. For example, the
proposal would require U.S. banks to cease using their own internal models for credit risk and
operational risk and instead use only a standardized approach. This proposed change is intended
to achieve the sensible goals of avoiding uneven implementation across similar risks at different
banks, as well as gaming of the requirements. We will need to ensure that the consistency and
anti-arbitrage benefits of the new standardized approaches outweigh the costs of treating the
risks of some quite different business activities as identical, which could reduce risk capture and
discourage less risky activities.
Third, I believe that recent events have demonstrated the need to strengthen supervision
and regulation for firms with assets between $100 billion and $250 billion. Here too, however,
we need to strike the right balance. Regulation and supervision should reflect the size and risks
