However, the Act envisions oversight of the bank by the appropriate banking agency and functional supervision of individual non-bank subsidiaries that is, SEC oversight of broker/dealers and oversight of insurance companies by state insurance departments. While the Act permits the Federal Reserve, under specifically defined circumstances, to seek information directly from or even examine non-bank subsidiaries of FHCs, the Act also stipulates that the Fed must rely “to the fullest extent possible” on publicly available information, externally audited financial statements, and reports and other information submitted to the functional supervisors. We at the Federal Reserve take this aspect of our revised role - sometimes referred to as “Fed-lite” very seriously. Clearly, it was not the intention of Congress to replace outdated and overly restrictive aspects of Federal banking law with a needlessly onerous and redundant regulatory regime. Moreover, functionally regulated firms should be able to compete on an equitable basis, whether or not they happen to be affiliated with a bank. To minimize regulatory burden and avoid duplication, the twotiered framework of umbrella supervision of financial holding companies and functional regulation of their subsidiaries requires enhanced cooperation and coordination among Federal and state supervisory authorities. Efforts are well underway among the relevant Federal and state financial services authorities to establish agreements and procedures to effectively implement Congress’ mandate. Before moving on, I want to address the topic of community reinvestment in the context of GrammLeach-Bliley.

Unprecedented economic prosperity At the dawn of the twenty-first century, we find ourselves at an unprecedented moment in the nation’s economic history. The US economy has just completed its 37th consecutive quarter of expansion, the unemployment rate is at its lowest level in three decades and labor force participation by our adult population is at its highest rate since the Second World War, when these statistics included the millions of Americans in uniform. Meanwhile, inflation has remained all but dormant, something thought not to be possible when the economy is growing so rapidly and unemployment is so low. Our prosperity is the envy of the world, and our economic model is acknowledged everywhere to be one that works. It’s not perfect, nor is it applicable in every detail to countries with different histories, cultures and values. Still, it is clear that in the longer run the market is better at allocating scarce resources than any version of a command economy. Importance of maintaining sound credit standards The remarkable duration of the current economic expansion and the strength of the banking system are not coincidental events. Without an effectively functioning banking system for encouraging, collecting and deploying society’s savings in a fair and impartial way into productive investments, there would be little hope for our economy, or any other, to mobilize the real resources necessary for economic growth and stability. With this in mind, one of my major concerns going forward is the quality of bank lending.