mr. tarullo, and he suggested we agree, and we had back and forth on that. this question may not be germane to the question that preceded my approving, but there's expertise at the panel, and i want your view on that question if i could. please. >> the question is not simple in part because of the exchange that just occurredded. if you're capital requirement -- if you are looking at risk weighted capital requirements, and you get into the interest of that, and it turns out that risk weights is used essentially to pretend that you don't have risk that you do have. as we saw under basel ii under mortgage-backed securities, for example, then you may look like there's strong capital requirements, but you don't. with dodd-frank, there are, you know, some of this is still being put in place. there are some very important principles in dodd-frank that are very good. one of them, for example, is dodd-frank embodies the principle of size based principles. we just learned we tend to like to bail out large institutions, so we charge them a higher capital rate. that cou

mr. walsh and governor tarullo frankly acknowledges this problem. but be on the uniformity problem, we should've learned a big lesson from our experiences of basel i in basel ii. the ability of basel ii determine the right amount of capital for giving a risk is highly questionable. basel iii is not a silver bullet. far from it. in my view we should use a long full facing time provided by the basel iii rules to re-examine how these roles can be more effective and implemented in a fashion to memorize impact. next i wanted to discuss designated sifis for systemically important financial institution to dodd-frank requires fsoc to designate non-bank fronts a system important and thus subject to said supervision. along with the $50 billion plus banking organizations which are already subject to fetch a provision under dodd-frank. other countries are going through a similar designation process. different approaches to designation and different sifi surcharges could have a major competitive impact. does we should have a global approach your. our national pr

mr. tarullo, i spoke with afterwards, he suggested that he agree with. we had some back and forth on that. this question may not be germane to the discussion that proceeded my arriving. we have some expertise on the panel and i'd like your view on that question if i could. please. >> the answer to this question is not simple in part because of the exchange that just occurred. if your capital requirements -- if you are looking at risk-weighted capital requirements, and you get into the inter of that and risk weighting is being used to pretend that you don't have risks that you do have under basel ii around mortgage-backed securities, for example, then you may look like you have really strong capital requirements, but you don't. okay? with dodd-frank there are -- you know, some of this is still being put in place. there are some very important principals in dodd-frank that are very good. one of them, for example, is size -- at least dodd-frank embodies the principal of size-base the capital requirements. we just learned we like to bail out large institutio

tarullo talked about 700 basis points on some of our sipis. how does that affect our lending? do you think that will have many negative effect on our economy? >> mr chairman, let's say a couple things here first. you have got to understand the rationale for a surcharge is systemically important. >> that is what we are talking about. >> it complements the rationale for basel iii which is a micro prudential so for the basel iii capital standards, we look at each firm on the basis of its balance sheet and its balance sheet alone. what is the riskiness of various assets on the balance sheet? it doesn't take into account the correlation of risk among firms that hold similar assets. in the financial crisis, what happens is those assets, particularly traded assets are under the most stress for which the market is most impeded. that is why the systemic effects we saw in 2008 are such a concern. the motivation for the surcharge is one that takes into account the interconnectedness' and associated systemic consequences of failure of such an institution. that is the first one. the second point, a fair amount of attention to the numbers i cited in that speec