However, the results seemed even more sensitive to changes in reasonable initial assumptions than did the other two models. Moreover, while the possible moral hazard and competitive funding advantage associated with SIFIs are certainly of concern, they do not relate directly to the conceptual foundation for enhanced capital requirements, which lies in the negative externalities associated with a SIFI failure.
In reaching our final view on calibration, the Federal Reserve Board will consider all these approaches, though I note that the expected impact methodology has had the most influence on our staff’s analysis. We will also take account of observations from academics and financial institutions. We are certainly mindful of the uncertainties associated with these methodologies.