Some measures—including stress testing, capital requirements, and resolution planning—are still in train, and others may be forthcoming as a result of the research program 2/8  BIS central bankers' speeches  the Federal Reserve is launching to consider the potential for additional explicitly macroprudential features in capital and liquidity stress testing.3 Still, I think it is feasible to teach and assess the general approach of using multiple regulatory tools that impose requirements that force systemically important firms to internalize the costs their distress or failure would impose on the financial system, and then leaving the regulated firms to make decisions as to how to alter their size and activities in order to make themselves most profitable within the stricter regulatory constraints.
So, as a sign of repentance, let me try attempt to clarify these different notions and to make the firm resolution to stick to them, at least until the end of this speech. In the context of the properties of an individual financial instrument, the notion of liquidity typically refers to the ability of trading such instrument (i.e.