for release on delivery 6 : 30 a. m. est ( 11 : 30 a. m. gmt ) february 11, 2017 “ i ’ d rather have bob solow than an econometric model, but... ” remarks by stanley fischer vice chairman board of governors of the federal reserve system at the warwick economics summit coventry, england february 11, 2017 introduction : econometric models and a eureka moment. eureka moments are rare in all fields, not least in economics. 1 one such moment came to me when i was an undergraduate at the london school of economics in the 1960s. i was talking to a friend who was telling me about econometric models. he explained that it would soon be possible to build a mathematical model that would accurately predict the future course of the economy. it was but a step from there to realize that the problems of policymaking would soon be over. all it would take was a bit of algebra to solve for the policies that would produce the desired values of the target variables. it was a wonderful prospect, and it remains a wonderful idea. but it has not yet happened. i want to talk about why not and about some of the consequences for policymaking. how the fed makes monetary policy let me begin with how we make monetary policy at the fed. the federal reserve system has both centralized and regional characteristics. the system comprises the board of governors, located in washington, d. c., and 12 regional reserve banks in cities across the united states ( figure 1 ). the members of the board of governors are appointed by the president, subject to confirmation by the u. s. senate. in contrast, the president of each reserve bank is selected by that reserve bank ’ s board of directors, subject to the approval of the board of governors. this scheme was designed both to i am grateful to ellen meade and robert tetlow of the federal reserve board staff for their assistance. views expressed are mine and not necessarily those of the federal reserve board or the federal open market committee. - 2insulate the federal reserve from day - to - day political pressures and to ensure that all parts of the country have a voice in the central bank. our monetary policy committee - - the federal open market committee ( fomc ) - meets eight times a year at the federal reserve board in washington to make decisions about whether to change the short - term policy rate and other aspects of monetary policy. 2 sitting around the massive conference table will be the policymakers

capital proposals being worked on by the u. s. agencies are just that - - proposals. the u. s. agencies welcome any and all comments on these documents. accordingly, our proposals could change based on comments received or new information gathered by the u. s. agencies. we know that at times this posture can be frustrating to some, but given the breadth and depth of these proposals, it is critical that we consider all viewpoints. this is especially true for the basel ii proposal, which represents a substantial and complex change in bank supervision and regulation. in this respect, i would like to echo the comments made earlier this month by comptroller john dugan : if the u. s. agencies see that basel ii is not accurately reflecting risk or is producing unacceptable capital levels, we will seek to make changes. indeed, we expect to make some adjustments as we move forward, just as changes have been made to basel i over the years to reflect changes in bank practice and improvements in supervision. compliance - risk management while the release of the basel ii npr is indeed a major step forward, it is of course not the only topic worth addressing here today. accordingly, i would now like to turn to another area the financial sector and regulators are focused on : compliance - risk management. " compliance - risk " can be defined as the risk of legal or regulatory sanctions, financial loss, or damage to an organization's reputation and franchise value. this type of risk may result when an organization fails to comply with the laws, regulations, or standards or codes of conduct that are applicable to its business activities and functions. the federal reserve expects each banking organization to have a compliance culture in place across the whole institution and an infrastructure that can identify and control the compliance risks it faces, along with appropriate rewards and penalties for business managers who oversee the compliance risk. to create appropriate compliance - risk controls, organizations must first understand risks across the entire entity. managers should be expected to evaluate the risks and controls within their scope of authority at least annually. i also emphasize the need for the board of directors and senior management to ensure that staff members throughout their organizations understand the compliance objectives and each member's role in implementing the compliance program. an enterprise - wide compliance - risk management program should be dynamic and proactive, meaning it constantly assesses evolving risks when new business lines or activities are added or when existing activities are altered. to avoid having a program that operates on " autopilot, " an organization must