a ten - day holding period and a 99 percent confidence interval, thereby creating potential arbitrage opportunities between the banking book and the trading book. the u. s. agencies issued their proposals to revise market risk capital requirements at the same time as the basel ii proposals, and we seek comment on the market risk proposals as well. notably, in the united states we would continue to have banks with significant trading book activity hold additional capital for the risks inherent in that line of business, whether they remain basel i banks or move to basel ii. given the international composition of this audience, i want to offer a few thoughts about the crossborder issues related to basel ii implementation. as you know, the u. s. agencies participate with other national supervisors in the accord implementation group and other groups to identify differences in implementation and discuss possible ways to harmonize rules and thereby reduce burden on crossborder banking organizations. we recognize that the adoption of differing approaches to basel ii by various countries may create challenges for banking organizations that operate in multiple jurisdictions, but it is good to remember that cross - border banking has always raised specific challenges that supervisors from various countries have worked hard to address. let me assure all bankers here that supervisors are aware that the process of adopting national versions of basel ii has heightened concerns about home - host issues. the federal reserve and other u. s. agencies have, for many years, worked with international counterparts to limit the difficulty and burden that have arisen as foreign banks have entered u. s. markets and as u. s. banks have established operations in other jurisdictions. we encourage bankers that have questions and concerns about home - host issues to promptly communicate with their regulators in all jurisdictions so that the issues can be addressed. enterprise compliance risk management and bsa / aml i would now like to turn to another area of the financial sector that regulators are focused on : compliance - risk management. this type of risk may result when an organization fails to comply with the laws, regulations, or standards or codes of conduct that are applicable to its business activities and functions. the federal reserve expects each banking organization to have a compliance infrastructure and culture in place across the entire institution that can identify and effectively control the compliance risks it faces. to create appropriate compliance - risk controls, organizations must first understand risks across the entire entity. managers should be expected to evaluate the risks and controls within their scope of authority at least annually. i also emphasize the need for the board of directors and senior management to

they obtain from community banks. rather, small businesses are, on average, using more financial services and types of services than they have in the past, and are obtaining these services from a greater number and wider variety of financial institutions, often including community banks. 6 to remain successful, any business must adapt to a changing competitive environment. the adaptation of community banks over the past two decades is evidenced by the substantial changes in their balance sheets, on both the asset and liability sides. on the asset side, both the average ratio of total loans to total assets and the average share of lending comprised by commercial real estate loans have increased markedly. on the liability side, reliance on deposits of individuals, partnerships, and corporations has declined somewhat, and there has been a dramatic increase in the share of community banks that hold brokered deposits. in addition, community banks have become more reliant on non - interest sources of revenue. these changes in business strategy, which undoubtedly helped to maintain community bank profitability over much of the past two decades, may in the current financial environment exacerbate the risks faced by community banks. in this difficult operating environment, federal reserve examiners are encouraging community banks to focus on maintaining sound loan quality and strong credit administration practices. in addition, they are working with community banks to ensure that they maintain appropriate capital planning, credit administration, and liquidity management policies. for example, earlier this year, the federal reserve issued supervisory guidance ( sr letter 09 - 4 ) that reemphasized the importance of capital planning and prudent dividend policies for bank holding companies ( bhcs ) and their bank subsidiaries. this guidance – which was directed at all bhcs, both large and small – reminded them to ensure that they remain sources of strength to their bank subsidiaries and to curtail dividends when their financial condition is under stress. a key part of any effective capital planning process is an evaluation of the risk posed by concentrations in specific portfolios of loans or other assets, and of the buffers necessary to offset potential losses on these holdings. in late 2006, the banking agencies issued guidance addressing concentrations in commercial real estate lending. this guidance set forth supervisory expectations for the management of risks stemming from these and other concentrations, including consideration of the effects of stressed market conditions on a bank's assets and capital. in the time since this guidance was issued, examiners report that many community banks have conducted rigorous and effective stress tests. but examiners have also visited many