All banks – large and small – need to consider whether they need greater capital cushions. The largest banks should consider whether their changing business model means that they need to hold more capital against some of the newer risks I discussed earlier. It is especially concerning that so many of these newer risks have arisen at the same time.
Moreover, core inflation in the first half of 2007 was damped by a number of transitory factors – notably, unusually soft prices for apparel and for financial services – which subsequently reversed. For the year as a whole, however, core PCE prices increased 2.1 percent, down slightly from 2006.