lisa d cook : welcoming remarks - 5th annual conference on " nontraditional data, machine learning, and natural language processing in macroeconomics " welcoming remarks by ms lisa d cook, member of the board of governors of the federal reserve system, at the 5th annual conference on " nontraditional data, machine learning, and natural language processing in macroeconomics ", washington dc, 13 november 2023. * * * good morning, and welcome to the 5th annual conference on " nontraditional data, machine learning, and natural language processing in macroeconomics. " 1 in a world with evolving data sources and significant advances in computing, it is important to constantly improve the conceptual framework that macroeconomic policymakers use to inform their critical decisions. this conference brings academics and practitioners together to think carefully about that framework and to push for advancements that could lead to improved economic outcomes. the federal reserve hosted the inaugural edition of this gathering in 2019. since then, the conference has evolved into an international partnership between academics, central banks, statistical agencies, and international organizations, with the bank of italy, the bank of canada, and the swedish riksbank hosting recent editions. the conference is also now jointly organized with the central bank research association and the economics with nontraditional data and analytical tools program, which will further enhance its international scope. we are grateful for the international and domestic partnerships that have emerged from this event and its predecessors. today, we have about 90 in - person participants in attendance, representing 30 agencies and foreign central banks. as we continue to leverage new data and master emerging techniques, cooperation between those that provide the statistics, those that base policy upon them, and those that leverage the latest methodologies to understand them will be of paramount importance. coordination between statistical agencies and policymaking institutions helps us achieve our shared goal - a better understanding of the economy. from our own institutional perspective, the federal reserve uses a broad array of government and private - sector data to continually assess the state of the economy, inform our outlook for economic activity, and evaluate the risks around that outlook in pursuit of our dual mandate of maximum employment and stable prices. not surprisingly, the emergence of nontraditional, high - frequency data was integral to better understanding the real - time effects of the covid - 19 pandemic and its economic consequences. 2 in the current environment, we employ a wide variety of tools and techniques to best distill useful signals related to inflation and the labor market from the

surprisingly, some banks have devoted substantial resources to attempting to achieve both adjustments to their portfolios. the resulting “ regulatory arbitrage ” surely causes some serious problems. for one thing, it makes reported capital ratios – a key measure of bank soundness used by supervisors and investors – less meaningful for government supervisors and private analysts. efforts are currently under way to redress many of the deficiencies in the current basle accord. but many of the issues are complex, and the optimal changes are still unclear. a consensus does seem to have developed that the accord must be more risk sensitive. but how risk sensitive, and how should that risk sensitivity best be implemented? i foresee a multistaged process with perhaps some modest and relatively noncontroversial “ fixes ” being proposed, possibly in the very near future, and more fundamental reforms being developed and implemented over a period of several years. given the dynamic nature of change in the financial sector, such a phased, or evolutionary, approach to revising the accord is probably not just the only practical strategy, but also the most prudent as well. the need for an evolutionary approach can be made with perhaps even more force to other supervisory policies and procedures. for example, the increasing use and sophistication of credit risk models at the largest and most complex domestic and foreign banks has profound implications for supervisory activities as well as capital regulation. understanding and evaluating credit risk models and related risk measurement techniques are quickly becoming required skills of bank supervisors. this need is fueled by the ever - growing array of securitizations, credit derivatives, remote originations, financial guarantees, and a seemingly endless stream of other financial innovations. add to this the fantastic speed with which financial transactions can now be conducted, and one begins to get a feel for the many challenges facing bank supervisors. with these realities in mind, supervisory practices at all of the banking agencies are changing. oversight of banks has become much more continuous and risk - focused than even a few years ago, especially at the largest and most complex organizations. it is recognized that we can no longer rely on periodic on - site examinations to ensure that these large institutions are operating in a safe and sound manner, but rather must be assured that their risk management practices and internal controls are sound on an ongoing basis. still, on - site examinations, in my judgment, remain critical. however, on - site examinations must evolve to be both as effective and as unobtrusive as possible. we