As last year's events showed, systemic problems can arise from the activities of non-banking firms but, under present law, these requirements apply only to firms owning a commercial bank. Indeed, there is an incentive to shift riskier activities into unregulated firms. A second item is to strengthen the prudential rules applicable to supervised institutions. This component of a reform program has manifold elements.
There is little doubt that capital levels prior to the crisis were insufficient to serve as an adequate buffer against loss and constraint on leverage, particularly in some of the largest financial institutions.