Supervisors can make sure that banks are working to mitigate such risks with effective risk management and liquidity planning. As we consider changes to our framework, we need to understand potential unintended consequences and be mindful that we do not inhibit innovation so that banks remain competitive and well positioned to effectively serve the needs of their customers.
To me, it is critical at this point to distinguish clearly between the concepts of total benefits, total costs, and marginal benefits and marginal costs. We all know, at least those of us with some training in economics should know, that profit maximizing firms will equate marginal benefits with marginal costs.