we have done this because we have an abiding commitment to consider how our decisions affect institutions and the customers they serve. we are well aware that community banks serve communities, businesses, and households that are often underserved by larger institutions and offer more extensive and more personalized services than are often otherwise available. we know that community bankers are part of the communities they serve, and they are often better able to understand the needs and the aspirations of their customers. we hope that the research presented at this conference stimulates discussion about the leading policy issues facing the industry and supervisors. as in the past, i see that this year ’ s agenda includes presentations related to several important issues, including the effect of supervision on risk - tasking and the effects of greater competition on community banks. i am cheered to see that finance students at the university of akron remain interested enough in community banking to participate in a case - study competition related to community banking, and i am pleased that the conference will hear a presentation of the winning case study. in closing, let me thank the conference organizers with the fed and the conference of state bank supervisors, the scholars and others making presentations, and all of you for attending. i hope you have a terrific conference. 1 / 1 bis central bankers'speeches

, improve the supervision of banking organizations, or otherwise enhance the federal banking laws without compromising the fundamental goals of bank regulation and supervision. a complete listing and summary of the proposals supported by the board is included in the appendix to my testimony. we believe these proposals provide an excellent starting point for any regulatory relief legislation, and we look forward to working with the committee as you develop and perfect such legislation. in my remarks, i will highlight the three items that are the board's highest regulatory relief priorities. these proposals would allow the federal reserve to pay interest on balances held by depository institutions at reserve banks, provide the board greater flexibility in setting reserve requirements, and permit depository institutions to pay interest on demand deposits. these proposals may well sound familiar to you and they should. the board has supported these amendments for many years because we believe each of them would improve the operation of our financial system. i should note that these three amendments form the core of s. 1586, the interest on business checking act of 2005, which was introduced last year by senators hagel, reed and snowe. the board strongly supports passage of s. 1586, either independently or as part of a broader regulatory relief bill. in addition to these priority items, i will highlight a few other legislative proposals that we believe would provide meaningful regulatory relief to banking organizations as well as some steps that the board has taken on its own to reduce regulatory burden. finally, i will discuss several matters related to industrial loan companies ( ilcs ). this topic has been raised by some regulatory relief proposals, but it has much broader policy implications for the structure and supervision of the banking industry. interest on reserves and reserve requirement flexibility ( matrix nos. 1 and 2 ) the first two of the board's priority items relate to reserve requirements, which exist to assist the federal reserve conduct monetary policy. federal law currently obliges the board to establish reserve requirements on certain deposits held at depository institutions and mandates that the board set the ratio of required reserves on transaction deposits above a certain threshold at between 8 and 14 percent. because the federal reserve does not pay interest on the balances held at reserve banks to meet reserve requirements, depositories have an incentive to reduce their required reserve balances to a minimum. to do so, they engage in a variety of reserve avoidance activities, including sweep arrangements that move funds from deposits that are subject to reserve requirements to deposits and money market investments that are not. these sweep programs and similar activities