That is, arbitrage may appropriately lower the effective capital requirements against some safe activities that banks would otherwise be forced to drop by the effects of regulation. It is clear that our major banks have become quite efficient at engaging in such desirable forms of regulatory capital arbitrage, through securitization and other devices.
We have also extended the lessons of systemwide stress testing to analysis of factors other than capital: For example, we recently completed a horizontal review of liquidity positions and liquidity risk-management practices at some of the largest CCAR firms.