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.
Indeed, the effects of the recession add to structural difficulties linked to operational models that are no longer sustainable and to lacunae in corporate governance, which we have urged banks to address in repeated calls to action that have often not been adequately heeded.