of our regulatory and supervisory performance and have been actively implementing improvements. on the regulatory side, we have played a key role in international efforts to ensure that systemically critical financial institutions hold more and higher - quality capital, have enough liquidity to survive highly stressed conditions, and meet demanding standards for companywide risk management. we have also been taking the lead in addressing flawed compensation practices by issuing proposed guidance to help ensure that compensation structures at banking organizations provide appropriate incentives without encouraging excessive risk - taking. 6 less formally, but equally important, since 2005 the federal reserve has been leading cooperative efforts by market participants and regulators to strengthen the infrastructure of a number of key markets, including the market for securities repurchase agreements and the markets for credit derivatives and other over - the - counter derivative instruments. to improve both our consolidated supervision and our ability to identify potential risks to the financial system, we have made substantial changes to our supervisory framework. so that we can better understand linkages among firms and markets that have the potential to undermine the stability of the financial system, we have adopted a more explicitly multidisciplinary approach, making use of the federal reserve ’ s broad expertise in economics, financial markets, payment systems, and bank supervision to which i alluded earlier. we are also augmenting our traditional supervisory approach that focuses on firm - byfirm examinations with greater use of horizontal reviews that look across a group of firms to identify common sources of risks and best practices for managing those risks. to supplement information from examiners in the field, we are developing an off - site, enhanced quantitative surveillance program for large bank holding companies that will use data analysis and formal modeling to help identify vulnerabilities at both the firm level and for the financial sector as a whole. this analysis will be supported by the collection of more timely, detailed, and consistent data from regulated firms. many of these changes draw on the successful experience of the supervisory capital assessment program ( scap ), also known as the banking stress test, which the federal reserve led last year. as in the scap, representatives of primary and functional supervisors will be fully integrated in the process, participating in the planning and execution of horizontal exams and consolidated supervisory activities. improvements in the supervisory framework will lead to better outcomes only if day - to - day supervision is well executed, with risks identified early and promptly remediated. our internal reviews have identified a number of directions for improvement. in the future, to facilitate swifter, more - effective

of central banks in bank supervision strongly complements their roles as lender of last resort, guardian of financial stability, and monetary policymaker has received increasing international support. for example, following the problems at northern rock in the united kingdom, the bank of england was given statutory responsibilities in the area of financial stability, its powers to collect information from banks were augmented, and many have called for it to be given increased supervisory authority. in germany, plans to shift bank supervisory powers from the financial services regulator to the bundesbank have received significant attention. in the european union, a new european systemic risk board is being established under which national central banks and the european central bank will play a key role in efforts to protect the financial system from systemic risk. more broadly, in most industrial countries today the central bank has substantial bank supervisory authorities, is responsible for broad financial stability, or both. see ben s. bernanke ( 2010 ), letter to christopher j. dodd and richard c. shelby ( with enclosure, “ the public policy case for a role for the federal reserve in bank supervision and regulation ” ), january 13. economic developments ; knowledge of a range of domestic and international financial markets, including money markets, capital markets, and foreign exchange and derivatives markets ; and a close working knowledge of the financial infrastructure, including payment systems and systems for clearing and settlement of financial instruments. in the course of carrying out its central banking duties, the federal reserve has developed extensive knowledge and experience in each of these areas critical for effective consolidated supervision. for example, federal reserve staff members have expertise in macroeconomic forecasting for the making of monetary policy, which is important for helping to identify economic risks to institutions and markets. in addition, they acquire in - depth market knowledge through daily participation in financial markets to implement monetary policy and to execute financial transactions on behalf of the u. s. treasury. similarly, the federal reserve ’ s extensive knowledge of payment and settlement systems has been developed through its operation of some of the world ’ s largest such systems, its supervision of key providers of payment and settlement services, and its long - standing leadership in the international committee on payment and settlement systems. no other agency can, or is likely to be able to, replicate the breadth and depth of relevant expertise that the federal reserve brings to the supervision of large, complex banking organizations and the identification and analysis of systemic risks. even as the federal reserve ’ s central banking functions enhance its supervisory expertise, its involvement in supervising banks of