##ers ’ operating prospects and that their borrowers always will have ready access to financial markets. and sometimes they ’ re failing to subject loans to meaningful “ stress tests ” that would, for instance, tell them if their borrower could withstand an unexpected shock to operating revenue. these are the kinds of developments that tend to get the attention of bank supervisors, and ought to get the attention of banks and other lenders. i have raised a number of questions and perhaps answered a few. thank you for the opportunity to do so.

some cases, in operating subsidiaries. the umbrella supervisor will have to keep other regulators informed so they can do their job as well. we have had some experience as bank regulators in managing these kinds of communications. the federal reserve has worked hard with state banking authorities and with the occ to increase the coordination of our examination and supervisory efforts, and we will continue to look for ways to improve this coordination as we also move to improve communication and coordination with functional regulators of the non - bank activities. the proposed blend of functional and umbrella supervision is one of several models for the supervision of diversified financial services firms that include a bank. the united kingdom, australia, switzerland, and some other countries have moved to a very different structure that relies on a single consolidated financial services regulator and eliminates supervisory and regulatory responsibilities at the central bank. in this approach, the single regulator supervises bank and non - bank activities alike. some see this structure as the wave of the future, given the blurring of distinctions between financial services. i wish our colleagues abroad the best of luck, but i think their legislatures have made a mistake. the argument is that in a market that has increasingly eroded differences among and between financial institutions, the uniqueness of banks has declined and the combining of financial institution regulators and adoption of similar, if not identical, regulations makes sense. adding a powerful single regulator to a powerful and independent central bank would create an entity with significant authority outside the day - to - day direct purview of government, so governments have opted to combine the regulators and strip the supervisory and regulatory power from the central bank. but please note that they have continued to make their central banks responsible for financial stability. while macro financial tools and monetary policy may be sufficient to do that job most of the time, supervisory and regulatory policies have important economic and stability implications. particularly in a crisis, a central bank without knowledge of the way markets actually operate – knowledge that can gained only by experience and hands - on contact with banking organizations – will be, if you will excuse an ex - professor ’ s metaphor, at risk of failing its final exam. as a result, i think the separation of central banking and supervision and regulation is dangerous. the supervisory and regulatory approach in the united states, as embodied in financial modernization legislation that the federal reserve supports, is quite different from the trend abroad. it provides an important role for the central bank in the process as an umbrella supervisor. it also makes an important distinction between the insured depository