can institute greater efficiencies in both banking regulation and in the banking industry itself. the bank regulatory framework is complex, and the various elements of this framework are intended to work in a complementary way. as banks 5 / 12 bis - central bankers'speeches evolve - by growing larger, or by engaging in new activities - tailoring can help us to quickly recalibrate requirements in light of the new risks posed by the firm. but the regulatory framework, especially how supervisors prioritize its application to the banking industry, can pose a serious threat to a bank's viability. for example, imposing the same regulatory requirements on banks with assets of $ 2 billion to $ 2 trillion under the new rules implementing the community reinvestment act demonstrated a missed opportunity to promote greater effectiveness and efficiency. 7 i question the wisdom of applying the same evaluation standards to banks within such a broad range. likewise, supervisory guidance can provide fertile ground to differentiate supervisory expectations under a more tailored approach. while supervisory guidance is not binding on banks as a legal matter, it can signal how regulators think about particular risks and activities, and often drives community banks to reallocate resources in a way that may not be necessary or appropriate. the fed's guidance on third - party risk management is an example of this. originally, this guidance was published in a way that applied to all banks, including community banks. yet, it was acknowledged even at the time of publication that it had known shortcomings, particularly in terms of its administration and lack of clarity for community banks. 8 tailoring is important for all banks, but it is particularly important for community banks. there are real costs not only to banks, but to communities, when the framework is insufficiently tailored, as community banks faced with excessive regulatory burdens may be forced to raise prices or shut their doors completely. these banks often reach unbanked or underbanked corners of the u. s. economy, not only in terms of the customers they serve but also in terms of their geographic footprint. we are all familiar with banking deserts and the challenges many legitimate and law - abiding businesses and consumers have in accessing basic banking services and credit. it is difficult to imagine that a system with far fewer banks would as effectively serve u. s. banking and credit needs and sufficiently to support economic growth. it is imperative that we keep the benefits of tailoring in focus as the bank regulatory framework evolves. a tailored regulatory and supervisory approach can

due to regulatory inaction or lack of clarity and transparency. regulators must find efficient and effective ways to support a vibrant and diverse banking system that enables these and other small institutions to thrive while supporting and investing in their local economy. tailoring transparency and efficiency are just two of the necessary components of a regulatory approach that promotes a healthy and vibrant banking system. another component that i speak about frequently is the use of " tailoring " in the regulatory framework. for those familiar with my philosophy on bank regulation and supervision, my interest and focus on tailoring will come as no surprise. 5 in its most basic form, it is difficult to disagree with the virtue of regulatory and supervisory tailoring - calibrating the requirements and expectations imposed on a firm based on its size, business model, risk profile, and complexity - as a reasonable, appropriate and responsible approach for bank regulation and supervision. in fact, tailoring is embedded in the statutory fabric of the federal reserve's bank regulatory responsibilities. 6 the bank regulatory framework inherently includes significant costs - both the cost of operating the banking agencies, and the cost to the banking industry of complying with regulations, the examination process, and supplying information to regulators both through formal information collections and through one - off requests. in the aggregate, these costs can ultimately affect the price and availability of credit, geographic access to banking services, and the broader economy. the cost of this framework - both to regulators and to the industry - reflects layers of policy decisions over many years. but this framework could be more effective in balancing the mandate to promote safety and soundness with the need to have a banking system that promotes economic growth. for example, let's consider costs. as regulatory and supervisory demands grow, there is often parallel growth in the staff and budgets of the banking agencies. we should not only be cognizant of these costs, but we should act in a way that requires efficiency while ensuring safety and soundness. some degree of elasticity in regulator capacity is necessary to respond to evolving economic and banking conditions, as well as emerging risks, but there must be reasonable constraints on growth. expansion of the regulatory framework is not a cost - free endeavor, and the costs are shouldered by taxpayers, banks, and, ultimately, bank customers. the bank regulatory framework has great potential to provide significant benefits, including supporting an innovative banking system that enhances trust and confidence in our institutions, and promotes safety and soundness. when we consider the benefits and the costs, we