over 2003. meanwhile, the agencies have observed some easing of underwriting standards, with lenders competing to attract home equity lending business. lenders are sometimes offering interest - only loans, high loan - to - value ratios, and limited requirements for documentation of a borrower's assets and income. they are also relying more on automated valuation models and entering into more transactions with loan brokers and other third parties. given this easing of standards, there is concern that banks'home equity loan portfolios may be vulnerable to a rise in interest rates and a decline in home values. in other words, there is a concern that not all banks fully recognize the embedded risks in some of their portfolios. but supervisors believe that, like most other lending activity, home equity lending can be conducted in a safe and sound manner with appropriate risk - management systems. credit risk involving commercial real estate is another area of regulatory attention. while the sector is generally stable or improving, banking supervisors are carefully monitoring rising commercial real estate concentrations at some banking organizations, particularly regional and community banks. smaller banks as a group have shown the strongest appetite for commercial real estate loans, and some claim that commercial real estate lending remains one of the few areas in which small banks can effectively compete with their larger competitors. so far, underwriting standards are high by historic standards, and much higher than in the period preceding the crises of the late 1980s and early 1990s. still, there have been signs recently that standards may be under some downward pressure as a result of strong competition and tight spreads. at a recent risk management association roundtable, several bank appraisers conceded that they are pressured to make deals on the assumption that exceptionally strong performance will continue indefinitely. supervisors are monitoring to see whether risk - management practices and capital levels are keeping pace with loan growth at individual banking organizations. i want to touch on one final topic related to credit risk. in march, the federal regulators issued for public comment a proposal to change the supervisory framework for the classification of problem loans. the current system dates back to 1938 and has undergone only minor revisions reflecting evolutionary changes in banking practices. the proposal would replace the current classified commercial loan categories - " special mention, " " substandard, " and " doubtful " - with a framework consisting of two parts : a borrower evaluation ( to assess the risk of the borrower defaulting on its obligations ) and a facility rating ( to measure the severity of the loss the bank would likely incur in the event

treasury that is statutorily responsible for the implementation of the bank secrecy act, are now drafting the new compliance guidance and examination procedures. as part of the rollout of the new bsa / aml examination manual, nationwide conference calls and regional outreach meetings will be held for bankers interested in understanding the procedures. bankers are encouraged to participate in these voluntary sessions. we are also putting a great deal of effort into examiner training to promote consistency. in addition, the federal reserve and the other federal bank supervisory agencies signed a memorandum of understanding with fincen last year to share critical information about banking organizations'compliance with the law. by providing pertinent bank secrecy act information to fincen, which is adding staff to fulfill its responsibilities, the federal reserve and the other regulators can now better coordinate their supervision with fincen, thus further reducing the potential for unwarranted compliance burdens on the industry. the bottom line is that any bank of any size should always be on guard for suspicious activities, and whenever they know, suspect, or have reason to suspect a violation of law, they should file suspicious activity reports according to federal reserve and fincen regulations. bankers have to do enough due diligence to know when a transaction is suspicious - for instance, if it has no business purpose or if it seems structured to get around bank secrecy act regulations. on a related matter, in april the agencies issued guidance on money - services businesses, or msbs, and how to handle them. the concern among bankers, which may result in part from misconceptions about the requirements of the bank secrecy act, was that they were being held responsible for monitoring the activities of their customers. we hope that our guidance will reassure financial institutions that it is not our view that all money services firms present an unacceptably high risk of money laundering or other illegal activities, that we are not instructing banks to close msb accounts, and that we do not expect the banks to regulate msbs. basel i amendments finally, as i'm sure you are aware, bank regulators have been working at the international level over the past several years to revise the basel accord, the risk - based capital framework. capital adequacy is a perennial concern of bank supervisors. the proposed revisions, especially the advanced approaches of basel ii, represent a sea change in how banks determine their minimum level of required capital for regulatory purposes. the advanced approaches are intended to better align regulatory capital with inherent risks and banks'internal