of their own operations and risk management capabilities. for credit risk, the range of options begins with the standardized approach and extends to the internal ratings based ( irb ) approach. the standardized approach, as you know, is structurally similar to the 1988 accord, where banks are required to differentiate their exposures into broad categories, such as loans they have made to corporate and sovereign borrowers or banks. it improves on the 1988 accord by aligning risk weights with a borrower ’ s creditworthiness as indicated by an external credit rating. the irb approach goes further and is one of the most innovative features of the new accord. it has been constructed to build upon and further encourage investments banks are already making in their internal risk management systems. as you know, these systems have been developed and further refined to promote a bank ’ s competitiveness and to protect it against loss - and not just to respond to a regulatory mandate. banks using the irb approach will be permitted to quantify key measures of a borrower ’ s creditworthiness in determining the corresponding capital requirement. this will include estimating the likelihood that the borrower will default. many banks will also be able to provide internal estimates of other key variables, such as the recovery rate if a borrower were to default and the likelihood of a credit line being drawn upon. while banks adopting the irb approach will have the flexibility to rely on their own estimates of key risk parameters, those estimates will be subject to a set of minimum operational requirements. the aim of these standards is to ensure that these critical inputs have integrity and are the product of a system the bank relies upon to perform its day - to - day operations. further, through pillars two and three, the new framework builds in additional checks and balances to ensure that banks ’ systems will generate accurate and timely credit assessments. the committee believes it critical to complement the more risk reflective capital requirements with the added incentives of supervisory review and market discipline. the second pillar of the new framework focuses on the need for banks to conduct their own assessments of the amount of capital they should hold relative to their risk. supervisors will be expected to review and respond to these assessments. i believe that discussions between bankers and their supervisors will create added incentives for management to assess its risks carefully. no longer will the emphasis solely be on whether a bank complies with regulatory minimums. rather, banks will be expected to manage their economic needs and operate with a capital buffer at levels above the regulatory minima

the united states — has declined to half a percent. 3 that ’ s about 2 percentage points below the average natural rate that prevailed in the two decades before the financial crisis. a striking aspect of these estimates is that they show no signs of moving back to previously normal levels, even though many advanced economies have fully recovered from the crisis. this poses significant challenges for monetary policy. when interest rates are low, central banks don ’ t have much room to maneuver to deal with a crisis. they will only be able to cut interest rates by a small amount before they hit zero — or as economists call it, the “ zero lower bound. ” of course, central banks can, and have, used negative rates to stimulate growth, but they bring with them a separate set of challenges. the result is that future recoveries will be slow, and slow growth is usually characterized by low inflation. persistently low inflation creates a vicious circle, where expectations of low inflation drag down current inflation. if inflation falls, central banks will have even less room to maneuver when faced with a slowdown. 4 a fresh approach all this begs the question : what can we do to prepare ourselves and our economies for the next 2 / 3 bis central bankers'speeches crisis? there ’ s no single silver bullet that can solve these challenges. but changes to monetary, fiscal, and other economic policies could all help us become more resilient. starting with monetary policy, central banks should reassess their strategies, goals, and the tools they use to achieve them. 5 this might include things like reassessing how we achieve our 2 percent goal. outside of monetary policy, there are a number of ways fiscal policy can support an economy. one is to strengthen the “ automatic stabilizers, ” which, in a downturn, reduce taxes without legislation to stimulate growth. another is to use regulation to enhance financial stability. finally, fiscal and other economic policies can attack the sources of slow growth and low r - star directly. demographics are not an area where most economists, or policy makers, want to meddle — and i ’ m certainly not going to stand here and say people should stop living so long! but there are things we can do to improve long - run growth. these include raising public and private investment in human and physical capital, infrastructure, and science and technology, as well as removing barriers to participation in the labor force and the economy more broadly. it ’ s impossible to predict the future. but we can