susan s bies : strengthening compliance through effective corporate governance remarks by ms susan s bies, member of the board of governors of the us federal reserve system, at the american bankers association, annual regulatory compliance conference in washington dc, 11 june 2003. * * * good morning. i thank you for the invitation to speak to this american bankers association regulatory compliance conference. since coming to the federal reserve board, i have spent much of my time dealing with corporate governance, internal control, and risk management issues. today, i would like to talk with you about the important role that the compliance function plays in banking organizations, and how the current emphasis on improving corporate governance is an opportunity for you to strengthen the compliance function in your organization. introduction over the past two years, we all have been shocked by the headlines announcing corporate governance or accounting problems at a variety of companies, such as enron, worldcom, and healthsouth. as we read these headlines, the question that comes to mind is, " what were the underlying deficiencies in the internal control processes of these companies that rendered their governance practices ineffective? " as the details about the scandals have been made public, it has become clear that they exemplify breakdowns in fundamental systems of internal control. why, then, have we seen so many headlines highlighting corporate governance and accounting problems? because these companies lost track of the basics of effective corporate governance - internal controls and a strong ethical compass. while most companies have effective governance processes in place, these events remind all of us of the importance of doing the basics well. internal control framework after an earlier series of corporate frauds, the national commission on fraudulent financial reporting, also known as the treadway commission, was created in 1985 to make recommendations to reduce the incidence of these types of frauds. the committee of sponsoring organizations ( coso ) of the treadway commission issued a report titled internal control - integrated framework that has become the most - referenced standard on internal control. if one re - reads that report, the need to return to focusing on the basics becomes clear. the report defines internal control as : a process, effected by an entity's board of directors, management and other personnel, designed to provide reasonable assurance regarding the achievement of... • effectiveness and efficiency of operations • reliability of financial reporting • compliance with applicable laws and regulations. the coso framework was the model considered when the federal deposit insurance corporation improvement act ( fdicia ) was enacted in 1991. section

context of cpi headline inflation having averaged 6. 3 per cent in the fourth quarter of 2021 - 22 and projected to average 7. 5 per cent in the first quarter of 2022 - 23 and 7. 4 per cent in the second quarter. inflation is, however, forecast to edge down to 6. 2 per cent in the third quarter and to 5. 8 per cent in the fourth quarter. the rbi act mandates that in the case of the inflation target not being met for three consecutive quarters, the rbi shall set out in a report to the central government ( a ) the reasons for failure to achieve the inflation target ; ( b ) remedial actions proposed to be taken ; and ( c ) an estimate of the time - period within which the inflation target shall be achieved pursuant to timely implementation of proposed remedial actions. what constitutes failure has been notified by the central government in the official gazette of india as ( a ) average inflation being more than the upper tolerance level of the inflation target for any three consecutive quarters ; or ( b ) average inflation being less than the lower tolerance level of the inflation target for any three consecutive quarters. let me speak to these issues squarely. monetary policy is essentially a contract between the sovereign - through its delegated authority, the central bank – and the people. it is an assurance by the sovereign that it will give to the people a money they can trust, a money that does not lose value or purchasing power, and in fact, stores value into the future. therefore, it is indeed appropriate that monetary policy is accountable, without any escape clauses. in india, this accountability is provided for with sufficient flexibility in the form of an inflation target defined in averages rather than as a point ; achievement of the target over a period of time rather than continuously ; a reasonably wide tolerance band around the target to accommodate measurement issues, forecast errors and supply shocks ; and failure being defined as three consecutive quarters of deviation of inflation from the tolerance band, rather than every deviation from the target. let me now turn to the specific aspects of the accountability conditions. research within the rbi, published in the report on currency and finance 2020 - 21, and outside it clearly demonstrates that growth is unambiguously impaired when inflation crosses 6 per cent. hence, breaching of the appropriate upper tolerance limit of 6 per cent for india ’ s inflation target should trigger accountability if monetary policy has to remain credible. currently, we live in extraordinary times. with inflation at multi - decada