roger w ferguson, jr : certified public accountants - partners in financial stability remarks by mr roger w ferguson, jr, vice chairman of the board of governors of the us federal reserve system, at the american institute of certified public accountants national conference on banks and savings institutions, washington, 8 november 2001. * * * i appreciate the opportunity to participate in the american institute of certified public accountants'( aicpa ) national conference on banks and savings institutions. as certified public accountants ( cpas ) serving the banking industry you contribute to our financial system as bank managers, financial executives, analysts, internal and external auditors, and advisers. your role in strengthening the internal control and transparency of banking organizations is a major one that we, as banking supervisors, are increasingly recognizing in our risk - focused examination policies, capital adequacy approaches, and disclosure initiatives. the impact of terrorist attacks recently you, as cpas with key roles in our financial system, have seen at first hand financial institutions and other companies - - and indeed our country - - work to overcome the challenges caused by the attacks of september 11. besides causing unimaginable personal loss and grief, the attacks rippled across our country, disrupting sales, production, and air travel and damping the confidence of consumers and businesses. and the attacks severely, if temporarily, disrupted financial market operations and activity. as testimony to the resilience of the american spirit, the immediate impact of the attacks has proved transient. our society and, in particular, our financial system are rebounding from the initial influences of the attacks. in the financial sector, market participants showed great creativity, flexibility, and resolve in addressing the difficulties that arose on september 11. to help the process, the federal reserve moved quickly to ensure financial market liquidity through record lending at the discount window and an infusion of funds through open market operations. we encouraged financial institutions to provide their customers reasonable relief, such as waiving late payment fees, extending loan terms, restructuring debt obligations and easing credit terms in situations arising from the september 11 attacks. also, the federal reserve and other federal banking agencies jointly issued a statement indicating our willingness to work with banks when increased extension of credit to customers may have caused a temporary decline in capital ratios. as companies directly affected by the attacks struggled to resume their business, the accounting profession assumed an important role. this was recognized in part by the release by the securities and exchange commission ( sec ) on september 14 that relaxed the auditor independence rules to

permit auditors to help their clients with internal reconciliations and certain accounting - records - related recovery efforts. with the sec's action, many accountants and auditors quickly assisted clients in reconstructing records and information. as a result, many private firms and financial institutions were able to move to off - site locations and quickly restart operations. we applaud your efforts and those of the businesses you serve. the longer - term prospects for the u. s. economy remain sound, just as they were before september 11. our flexible markets, entrepreneurial spirit, well - educated work force, and major advances in information technology provide a sound foundation for the long - term growth of productivity, employment, and standards of living. in the medium term, consumer and business behaviors will significantly affect the way our economy progresses. policymakers have reacted vigorously to changing macroeconomic conditions. as you know, the federal open market committee has reduced its target for the federal funds rate by 150 basis points since september 11. banking supervision and accounting and disclosure the federal reserve has long supported sound accounting policies and meaningful public disclosure by banking and financial organizations with the objective of improving market discipline and fostering stable financial markets. effective market discipline can complement bank supervision and regulation. with sufficient accurate and relevant information, market participants can better evaluate counterparty risks and adjust the availability and pricing of funds to promote better allocation of financial resources. the concept of market discipline is assuming greater importance among international banking supervisors as well. the most recent proposal to amend and augment the basel capital accord, which was published in january and called basel ii, seeks to strengthen the market's ability to aid bank supervisors in regulating capital adequacy. it consists of three pillars, or tools : risk - based capital ( pillar i ), risk - based supervision ( pillar ii ), and disclosure of risks and capital adequacy to enhance market discipline ( pillar iii ). this approach to capital regulation, with its market - discipline component, signals that sound accounting and disclosure will continue to be important parts of our supervisory approach for many years to come. i understand that these efforts to enhance our capital rules will be addressed later today in a separate session, so i will not discuss them in depth. however, i would like to point out that our goal in the basel process is to develop a risk - sensitive framework that provides appropriate incentives to banking organizations to maintain strong capital positions and sound risk - management systems. the history of the 1990s, which included episodes