For example, the Committee’s call for better measures of potential future exposure may apply to the way such exposures are measured for capital purposes in the Accord. Other Regulatory Efforts Introduction One of the Basle Committee’s hopes is that its sound practice recommendations will be widely implemented by supervisors both here and overseas. Governor Meyer and Deputy Comptroller Brosnan will be discussing in detail the guidance issued by the Federal Reserve and the OCC. I should also note that the New York State Banking Department recently released a report on banks’ hedge fund activities that supports the observations and supervisory priorities set forth in the Basle Committee Report. In addition, international supervisory bodies and supervisors from countries outside the U.S. are in the process of acting on many of the proposals discussed here today. Actions Regarding Hedge Funds by International Groups and Individual Countries In February, IOSCO, the International Organization of Securities Commissions, established a task force on HLIs. I understand that IOSCO is focusing on securities firms’ dealing with hedge funds and the ways in which risk management and market transparency can be improved, which complements the Basle Committee’s work concerning banks. Because banks and securities firms are the primary counterparties of HLIs, it is crucial that there be a coordinated supervisory response at the international level among securities and bank regulators. At their meeting last month, the Group of Seven (G-7) countries issued a statement endorsing both the Basle Committee and IOSCO efforts.

Turning to today’s conference theme of “On the Horizon for Community Banking,” I have a few observations that I’d like to share. These observations, in part, preview the day’s agenda and I look forward to the continued conversation on these important issues. First, our country and the banking industry have benefitted from steady economic growth, modest inflation, and low unemployment in recent years. These are all positive and welcome outcome, but not all regions have benefitted equally here in the Second District. Some portions of upstate New York have benefitted from an influx of technology companies and other industries, while other regions remain challenged due to a lack of population growth. Later today we will hear from two of our economists who will share national and regional economic trends. Also in the spirit of looking forward, I can share some views on what community bankers can expect from the supervisory process. Examiners are keenly focused on emerging trends around funding costs and liquidity risks. Bankers consistently share with us the challenge of raising core deposits to fund loan growth. Community banks compete not only with other community banks for deposits, but also with credit unions and larger institutions. And, these larger counterparts are actively courting customers through direct mailers and offering competitive rates. Data in the Second District show cost across most deposit categories have increased with a slight uptick in the higher cost funding sources such as borrowings. Data for the largest banks exhibit a comparable trend, but they control a larger market share.