Our approach at the Fed seeks to achieve this outcome for the major institutions for which we are the consolidated supervisor. But the basic argument for applying exacting standards for risk based capital, for liquidity management, and for operational resilience applies to a broader range of supervised and regulated financial institutions whose operations pose significant systemic implications for the financial system. This is particularly compelling in the case of the major GSEs, where the regulatory framework, capital regime and sophistication of the internal risk management framework need to be upgraded to a standard more commensurate with their risk profile and the risks they present to the system. It is as compelling in the case of the institutions - a number of them specialized financial utilities - that make up the core of the payments infrastructure. Here, because of their overall importance to the functioning of our financial system, we are working to encourage improvement in operational resilience, to ensure they meet the recently updated international standards for risk management and internal financial resources, and to strengthen the oversight framework. It is important to note that the SEC has itself outlined a framework that would provide a form of consolidated supervision of the major investment banks with a risk-based capital framework based on Basel II.
Timothy F Geithner: Changes in the structure of the US financial system and implications for systemic risk Remarks by Mr Timothy F Geithner, President and Chief Executive Officer of the Federal Reserve Bank of New York, to the Federal Reserve Bank of Chicago Conference: Systemic Financial Crises Resolving Large Bank Insolvencies, Chicago, 1 October 2004. *  *  *  My compliments to Michael Moskow for putting together this conference and for bringing together this formidable group of talent on systemic banking crises. There are those who regard this type of enterprise - that of strengthening the regime for managing financial failures - as misdirected. Some think focusing on bank resolution is like devoting resources to redesigning the morgue rather than improving the hospital. Some think that by preparing to deal with crises you make them more likely. I think the wiser judgment is the contrary. In this area at least, if you want peace or stability, it’s better to prepare for war or instability. I think this is particularly important for us in the United States. Although we have a rich history of banking crises in our past, and have watched other countries confront such crises more recently, it’s been some time since we’ve experienced the prospect or the reality of a systemically significant bank failure in this country.