: 1. consultants are hired by management and work to add value to the shareholders that management represents. supervisors, in contrast, ultimately work for the public at large. rather than adding shareholder value, supervisors seek to reduce or eliminate excessive risks to the financial system and the federal safety net. 2. supervisors have much more impact in the banking industry than even the most savvy or articulate consultant. we must be willing to exercise that moral and legal authority to forestall as best we can practices that we know might become harmful even before the full results of such practices become evident. in this we may not always be popular. 3. finally, consultants can be wrong with only relatively limited consequences. the caliber of their advice is rarely subject to after - the - fact scrutiny. when a consulting firm makes a mistake, it may lose a client and that company may lose some money. when a banking agency fails to act, the consequences can be widespread for the economy and the public at large. to keep the public ’ s trust, we need to be ever mindful of whose interests we serve. we do want to minimize the burden of supervision. we do want to foster modernization. we must stay current with the latest financial techniques. we can assist institutions by identifying weaknesses and, at times, we can offer views toward resolution. ultimately, however, we are forced to supervise and regulate banks in the interest of the public.

the label “ consultants. ” in my comments this morning, i would like to draw on my experience as a consultant to banks and other financial institutions to discuss some similarities and differences, as i see them, between the role of consultant and the role of supervisor. i raise this topic today because the recent turmoil in asia has some roots in poor banking performance and poor banking supervision. i believe that the market is ultimately the best regulator of financial services, but we will still need supervision and regulation to offset the limitations inherent in regulation from the market. the recent turmoil in asia serves as a reminder of the risks that financial institutions take and the systemic impact that can emerge if supervisors are not mindful of the important role that they continue to play in containing that risk. why do we need management consultants and supervisors let me begin with the basic question of why firms hire management consultants. many large companies that hire management consultants have substantial talent, resources and expertise of their own. a key reason they seek outside guidance is that the employees of these companies often lack the objectivity, the cross - company and cross - industry experience, or the specific, technical expertise that the company needs. companies also hire consultants simply because they want to avoid distracting key individuals from their on - going operational duties in order to conduct a project that an outsider can perform. why, on the other hand, do banks hire bank supervisors? the obvious answer is that they do not hire them at all. supervision is found to be necessary - - not only here but also in virtually every country abroad - - to protect the public ’ s interest in the lending and deposit - taking process. the fact that we continue to regulate banks reflects the economic concept of “ externalities ” and the need to protect the safety net that most societies extend to banks. it is not the impact of one bank ’ s decisions on the wealth of its owners and the job security of its workers that worries us. bank managers must be allowed to make managerial decisions with a minimum amount of regulatory and supervisory interference. bank directors and managers have strong incentives to take care in their decisions due to a natural concern for personal job security, personal wealth, and continuing control in the active market for bank consolidation. some will make wise decisions, and their institutions will thrive ; others will make decisions that prove to be incorrect and their banks will suffer. however, we know that no single bank management team, regardless of how well intentioned, can accurately value the cost of its decisions, good or bad,