11  Congress granted this authority to the Federal Reserve in the Financial Services Regulatory Relief Act of 2006, with an October 2011 effective date, but accelerated its implementation to October 2008 as part of the legislative response to the financial crisis. A similar tool is critical in the implementation regime of most advanced economy central banks. 12  The FOMC also considered an arrangement under which depository institutions could pledge funds held in a segregated account at the Federal Reserve as collateral in borrowing transactions with private creditors. This approach aimed to reduce credit-related barriers to depository institutions’ borrowing funds in money markets and thereby intensify competition among borrowers. The FOMC decided that these accounts involved operational, regulatory, and policy issues that would have been difficult to resolve in a timely fashion, and it shelved further work. See the minutes to the FOMC’s December 2014 meeting. 13  This approach was discussed in detail in the FOMC’s June 2011 Exit Strategy Principles. 14  The Federal Reserve continues to test its Term Deposit Facility (TDF). In late 2014 and early 2015, the Federal Reserve conducted rounds of testing of the TDF that on two occasions resulted in cumulative take-up of more than $ billion. These operations reportedly had no significant impact on conditions in money markets, suggesting that TDF operations would have to be significantly larger to put upward pressure on rates. 15  This approach has been used heavily, for example, by central banks that have large foreign exchange reserves.
They are even less so at the level of the financial system as a whole. This is nevertheless the challenge we have to face today. Let me come back to the G20 action plan. This plan first recognises the need to strengthen prudential regulation in three areas. Capital requirements need to be strengthened and made more counter-cyclical by introducing a system of capital buffers. The quality of capital should be enhanced and its definition harmonised. We also may need to add to the range of instruments currently available a simple mechanism to measure leverage in order to complement the information provided by the solvency ratio. Another lesson that the G20 has learned from the crisis is that the current scope of regulation and supervision is inappropriate as it is too narrow. The current framework is based on the implicit idea that banks alone – because they collect deposits – are the source of risks for the system as a whole. This used to be the case. Yet, it is no longer true at all. It is now evident that all systemically important institutions and markets need to be regulated. In concrete terms, the G20 is widening the scope of regulation to include rating agencies, hedge funds and derivatives markets. The general principle is to abandon a silo approach to regulation, which was structured around institutions' legal character (e.g. banks, insurance companies, etc.