creation, participation on the financial stability oversight council ( fsoc ). this work is carried out by staff in that office as well as in many areas across the board and is overseen by the board ’ s newly created committee on financial stability. this work is proceeding in four pillars, which are in varying stages of advancement. see ben s. bernanke ( 2013 ), “ a century of u. s. central banking : goals, frameworks, accountability ”, speech delivered at “ the first 100 years of the federal reserve : the policy record, lessons learned, and prospects for the future ”, a conference sponsored by the national bureau of economic research, cambridge, mass., july 10. more precisely, it is predominantly a supervisor of depository institutions and depository institution holding companies. bis central bankers ’ speeches first pillar : surveillance the first pillar is surveillance of the possible risks that could threaten financial stability. research and historical case studies suggest that increasing valuation pressures accompanied by rising leverage, widening maturity mismatches, and the erosion of underwriting standards often provide important warning signals. drawing on this information and other analysis, each quarter federal reserve board staff systematically assess a standard set of financial vulnerabilities, including asset valuations and risk appetite, leverage, maturity and risk transformation, and interconnectedness in the broad financial system, and borrowing by households and businesses. the research that informs this work, by helping to identify financial patterns likely to be associated with rising risks of financial crisis, continues to grow. but its predictive power is still limited ; it remains difficult to identify ahead of time credit booms that are likely to cause severe damage, such as the subprime housing crisis, from those that do not, such as the high - tech boom, in part because risk - taking by financial market participants cannot always be well - observed. 3 over time, our and others ’ surveillance will benefit as the office of financial research established by the dodd - frank act, makes progress in facilitating the sharing of previously siloed data sets among the independent regulators and as international impediments are overcome, allowing more comprehensive analysis of financial transaction flows across different types of financial intermediaries and activities. this regular, systematic surveillance of financial vulnerabilities is buttressed by three other valuable types of analysis. first, we use the detailed information gathered through bank examinations and loan reviews that are the regular work of our supervisors to assess emerging risky practices ; these reviews helped identify deteriorating underwriting

or, alternatively, whether they only exist on paper. although i recognize that many other countries do not conduct on - site examinations for legal and other reasons, the federal reserve concurs with the position taken by the basle committee ’ s core principles that it is important for supervisors to perform some on - site supervision. ii. need for sound accounting and financial transparency the federal reserve believes that sound accounting and transparent financial information is a fundamental pillar of a strong banking - - and, indeed, financial - - system. transparency is essential for the market to be able to make decisions on an informed basis. the arms - length negotiations of informed investors and issuing banks provide the strongest market basis for the issuance and pricing of equity and debt securities, as well as loans. banking supervisors should strongly advocate transparency to aid effective supervision and market discipline. indeed, they can encourage the process directly through appropriate regulatory reporting requirements and even making all or part of those reports public. it is important for governments to allow market forces to reward prudent behavior and penalize excessive risk - taking. sound, well - managed firms can benefit if better disclosure enables them to obtain funds at risk premiums that accurately reflect lower risk profiles. inadequate financial disclosure, on the other hand, could penalize well - managed firms, or even countries, if market participants do not trust their ability to assess firms ’ or countries ’ fundamental financial strength. regulatory structures that overly protect banks from market forces, or that allow lax accounting and disclosure to disguise firms ’ financial problems, remove market discipline on banks and permit them to operate less efficiently. deposit insurance systems and the public safety net are examples of regulatory interference with market forces, despite their public benefit. they create a moral hazard by allowing institutions to take on what might be excessive risk without proportional fear that their ability to raise funds at favorable rates will be impaired. this is illustrated by the costly us savings and loan crisis of the 1980s. lax accounting and capital standards allowed economically insolvent institutions to continue operating and attracting insured deposits at attractive rates because the deposits were government insured. this, in turn, delayed government and public recognition of the scope of the problem and tremendously increased the cost of its resolution to the deposit insurance system and the american taxpayer. to be credible to global investors, accounting standards should be established by independent professional organizations and enforced by a combination of market discipline and national oversight authorities. particular to banking and the credibility of banks ’ financial statements is the establishment of prudent levels