But prudential supervisors, including the Federal Reserve, must also review their existing policies and guidance to identify areas where changes could help firms strengthen their risk management – a process that is already under way. Two areas of focus in this review will be capital and liquidity, the principal buffers that firms have against unexpected shocks.
Regulators should adopt policies that lead financial institutions to hold capital and liquidity cushions commensurate with their firm-wide exposures to adverse market events. The PWG also will be asking U.S. regulators, working together and through international groups such as the Basel Committee on Banking Supervision, to enhance their guidance in a variety of areas in which weaknesses were identified.