. " not surprisingly, market participants took this statement to mean that the riksbank was setting the policy instrument not only to control inflation but also to restrain house prices. a similar reference to house prices in explaining the decision to raise rates was made in the press release of january 20, 2006. the above statements suggest that some central bankers advocate that asset prices, and in particular, house prices, should have a special role in the conduct of monetary policy over and above their foreseeable effect on inflation and employment. there are several objections to this view. a special role for asset prices in the conduct of monetary policy requires three key assumptions. first, one must assume that a central bank can identify a bubble in progress. i find this assumption highly dubious because it is hard to believe that the central bank has such an informational advantage over private markets. indeed, the view that government officials know better than the markets has been proved wrong over and over again. if the central bank has no informational advantage, and if it knows that a bubble has developed, the market will know this too, and the bubble will burst. thus, any bubble william r. white ( 2004 ), " making macroprudential concerns operational, " speech delivered at the financial stability symposium sponsored by the netherlands bank, amsterdam, october 25 - 26 ( www. bis. org / speeches / sp041026. htm ). francesco giavazzi and frederic s. mishkin ( 2006 ), " an evaluation of swedish monetary policy between 1995 and 2005 " report published by the riksdag ( swedish parliament ) committee on finance ; refer to sveriges riksbank ( 2006 ), " assessment of monetary policy, " press release, november 28, www. riksbank. com / templates / page. aspx? id = 23320. sveriges riksbank ( 2006 ). " repo rate raised by 0. 25 www. riksbank. com / templates / page. aspx? id = 20502. percentage points, " press release, february 23, that could be identified with certainty by the central bank would be unlikely ever to develop much further. a second assumption needed to justify a special role for asset prices is that monetary policy cannot appropriately deal with the consequences of a burst bubble, and so preemptive actions against a bubble are needed. asset price crashes can sometimes lead to severe episodes of financial instability, with the most

heavily on cooperation among multiple state and federal supervisors, and it is not perfect. but it is working, and we think working effectively. state - chartered banks remain competitive and strong, and the asset share of state - chartered banks has remained relatively constant. while the banking industry ’ s continued consolidation is widely recognized and the total number of u. s. commercial banks continues to decline, less evident is the consistent chartering of new banks - roughly one new charter for every three consolidations. seventy - five percent of these newly chartered banks are state banks. the state charter is apparently no less attractive than before banks gained new powers to expand nationwide. certainly, we could not have postponed interstate banking until we had devised the perfect system for supervising it. the marketplace was moving, and we had to adjust our role to take account of that. the system we have developed in the banking arena is an evolutionary one, and one we will continue to work to improve. i know that you have been working hard at similar efforts in the insurance industry. i understand that here in sante fe, you have a number of important efforts underway, including proposals involving model laws that would govern market conduct surveillance and property and casualty insurance regulation. the institutions we supervise face the same challenges : competition on a growing number of fronts from unregulated entities, and consumers who are more sophisticated about choosing financial products. regulated institutions must be allowed to respond to changes in the marketplace or they will not survive. less - regulated institutions will prevail and in the process diminish the very protections that the regulations sought to preserve. at the same time, of course, we cannot forget that we are required by law to supervise the entities under our jurisdictions, to protect the public, and to preserve the strength of the financial system. to conclude, i will offer one final thought on the important subject of financial regulation and legislation. while we as regulators and legislators have the responsibility for setting and maintaining standards of safety and soundness for the benefit of consumers, we cannot ignore the power of market forces to cause the continual development of consumer financial products. improvements in technology and consumer techno - literacy have prompted dramatic changes in all financial industries. yet with all the changes we have seen, we are likely still in the early stages of realizing the full benefit of technological innovation. our efforts as regulators and legislators will continue to be relevant only when they are consistent with these changing market forces.