the ability of the federal reserve to examine, obtain reports from, or take actions to identify or address risks with respect to both nonbank and depository institution subsidiaries of a bank holding company that are supervised by other agencies. consistent with these provisions, we have worked with other regulators and, wherever possible, sought to make good use of the information and analysis they provide. in the process, we have built cooperative relationships with other regulators – relationships that we expect to continue and strengthen further. nevertheless, the restrictions in current law still can present challenges to timely and effective consolidated supervision in light of, among other things, differences in supervisory models – for example, between the safety and soundness approach favored by bank supervisors and the approaches used by regulators of insurance and securities subsidiaries – and differences in supervisory timetables, resources, and priorities. moreover, the growing linkages among the bank, securities, insurance, and other entities within a single organization that i mentioned earlier heighten the potential for these restrictions to hinder effective group - wide supervision of firms, particularly large and complex organizations. to ensure that consolidated supervisors have the necessary tools and authorities to monitor and address safety and soundness concerns in all parts of an organization on a timely basis, we would urge statutory modifications to the fed - lite provisions of the gramm - leach - bliley act. such changes, for example, should remove the limits first imposed in 1999 on the scope and type of information that the federal reserve may obtain from subsidiaries of bank holding companies in furtherance of its consolidated supervision responsibilities, and on the ability of the federal reserve to take action against subsidiaries to address unsafe and unsound practices and enforce compliance with applicable law. limiting the costs of bank failures the timely closing and resolution of failing insured depository institutions is critical to limiting the costs of a failure to the deposit insurance fund. 7 the conditions governing when the federal reserve may close a failing state member bank, however, are significantly more restrictive than those under which the office of the comptroller of the currency may close a national bank, and are even more restrictive than those governing the fdic's backup authority to close an insured depository institution after consultation with the appropriate primary federal and, if applicable, state banking supervisor. the federal reserve generally may close a state member bank only for capital - related reasons. the grounds for which the occ or fdic may close a bank include a variety of non - capital - related conditions, such as if the institution is

ii implementation. as you probably know, the agencies issued a statement on april 29 indicating that results from qis4 were more widely dispersed and showed a larger overall drop in capital than we had expected. this was the impetus for deciding to delay issuance of our next round of proposals for basel ii. these unexpected results show the continued benefit of conducting periodic quantitative impact studies. they serve as a milestone to help us calibrate the progress of the framework and the bankers as we move to basel ii. we now must determine the reasons for the unexpected results from qis4. do they reflect actual differences in risk among respondents when prior supervisory information suggested more similarity in credit quality? none of the participating banks has completed their databases and models for all of their risk areas. in some cases, this created results that would not be reliable for implementing basel ii. for example, for some portfolios, expected losses reflected only the last year or two of results. thus, the strong credit performance of recent experience was not balanced by higher losses at other points of the credit cycle. were there limits of the qis4 exercise itself? is there a possible need for adjustments to the basel framework? analyzing the data used in qis4 is vitally important, because ultimately the success of basel ii will depend on the quantity and quality of data that banks have to use as inputs to the framework. u. s. regulators expect to provide additional information on the lessons we learn from the qis4 review in the near future. the notice of proposed rulemaking ( npr ) for basel ii will incorporate what we learn from this exercise. but we really are caught in a process dilemma. bankers cannot complete their models and collect the necessary data until they know what the specific requirements will be. regulators, on the other hand, will have to develop these requirements before seeing the actual results of these models and robust databases. given what a vast undertaking basel ii is, this seems entirely appropriate and beneficial. in addition to what we learn from the work on qis4 results, we will also assess the trading and banking book comments of the basel committee on banking supervision and the international organization of securities commissions. we will incorporate the latest proposal into the notice of proposed rulemaking and hope to complete our efforts in a timely manner. in addition, under our current plans, we also will be delaying issuance of an advance notice of proposed rulemaking to revise current capital rules for non - basel ii banks. u. s. banking regulators