While it is difficult to make this distinction in practice, I believe it is useful to keep the difference in mind as we discuss and explain our work. 5/7  BIS central bankers' speeches  In my view, communication is vital, and we should explain our goals as clearly as possible and acknowledge all expected outcomes of policy changes. By recognizing the full set of expected outcomes, including those that are not desired, I believe we can more effectively communicate the goals of supervisory policy, increase accountability and transparency, and better fulfill our mission to promote a safe, sound and stable banking and financial system. Thank you for your attention. 1 I would like to thank Jim Bergin, Dianne Dobbeck, Hampton Finer, Robert Fitchette, Lauren Hargraves, Bev  Hirtle, Michael Holscher, Anna Kovner, Don Morgan, Siobhan Sanders, and Katherine TilghmanHill for helpful comments and discussions. 2 Board of Governors of the Federal Reserve System, Supervision and Regulation Report, November 2018 and  U.S. Department of the Treasury, A Financial System that Creates Economic Opportunities, Banks and Credit Unions, June 2017. 3 This can be thought of as determining optimal policy that considers the net benefits as in Bank for International  Settlement, An Assessment of the Long-Term Economic Impact of Stronger Capital and Liquidity Requirements , August 2010 or as promoting the sustained provision of financial intermediation across a wide range macroeconomic conditions as in Kevin J. Stiroh, A Perspective on Supervisory Objectives, and Trade-offs, February 23, 2017.

I believe this simple framework is useful when assessing and discussing changes to supervisory or regulatory policy that can be designed with different purposes in mind. For example, a policy change could be designed to increase efficiency and move toward the frontier. This could entail changing rules, regulations, or supervisory practices in order to promote more financial intermediation without increasing risk. Obvious examples could be eliminating a complex compliance regime for an activity that banks no longer perform or reducing redundancy in data reporting. It seems like a good idea to always pursue these types of efficiency gains. 1/7  BIS central bankers' speeches  Alternatively, a policy change could be designed to achieve a different risk and return profile. This could be a shift from a mix of policies designed to achieve a low-intermediation and low-risk outcome to a mix of policies designed to support higher intermediation while accepting greater risk. Either of these regimes can be efficient and consistent with policymakers’ preferences, but the expected outcomes would be quite different. From a public policy perspective, in my view, it is important to be clear and distinguish between these two types of policy change. For example, one might expect a greater number of bank failures during stress if there were less effective supervisory oversight or higher borrowing costs in a world with higher capital requirements.4 Those may not be desired outcomes, but they would be predictable ones. From a risk management perspective, this might be viewed as an accepted risk of a particular policy choice.