Many community bankers are taking a proactive, forward-leaning approach to these new technologies with a focus on how they can be leveraged to improve their business and benefit their customers. Among the opportunities community bankers have highlighted during our discussions are: technological solutions that reduce back office costs; more efficient loan processing; and an improved customer experience through smartphone applications and other mobile technology. This proactive perspective leverages innovation as a strategic differentiator and competitive advantage, rather than just a means to enhance efficiency. The speed and magnitude of these changes also have implications for us as supervisors. We must keep pace and understand the risks associated with innovation so that we can appropriately focus our supervisory efforts on new operational, compliance, and reputational risks. For example, Supervisory and Regulatory Letter 13–19, “Guidance on Managing Outsourcing Risk,” provides supervisory expectations on partnering with outside vendors. While supervisors can provide some focus on emerging risks, it is ultimately the responsibility of each firm and its board to identify the relevant risks associated with new technologies and make appropriate and prudent business decisions for their institutions and customers. Cybersecurity The potential benefits associated with these new technologies are accompanied by the risks posed by cybersecurity. Cybersecurity risks, the third topic on my list, continue to raise challenges for all types of firms in the financial system, ranging from supervised banks to financial utilities to non-bank financial firms to government agencies.

William C Dudley: Lessons learned from the financial crisis Remarks by Mr William C Dudley, President and Chief Executive Officer of the Federal Reserve Bank of New York, at the Eighth Annual BIS Conference, Basel, 3 July 2009. *  *  *  In assessing the lessons of the past two years, I will focus on five broad themes that are interrelated: •  Interconnectedness of the financial system  •  System dynamics – How does the system respond to shocks? •  Incentives – Can we improve outcomes by changing incentives? •  Transparency  •  How should central banks respond to asset bubbles? As always, my views are my own and may not necessarily reflect those of the FOMC or the Federal Reserve System. Interconnectedness This financial crisis has exposed how important the interconnections are among the banking system, capital markets, and payment and settlement systems. Focus on only one part of the financial system can obscure vulnerabilities that may prove very important. For example, the disruption of the securitization markets caused by the poor performance of highly-rated debt securities, led to significant problems for major financial institutions. Banks had to take assets back on their books; backstop lines of credit were triggered; and banks could no longer securitize loans, increasing the pressure on their balance sheets. This reduced credit availability, which increased the downward pressure on economic activity, which caused asset values to decline further, increasing the degree of stress in the financial system.