. an immediate challenge is for the firm to assess whether conducting certain types or levels of business activity in a new country would cause it to become subject to various laws of that jurisdiction. if so, then the firm becomes subject to more legal and regulatory requirements, some of which may be inconsistent with those applicable elsewhere. the result of the geographic expansion then is to increase the risk of possible compliance problems and to make the management of a global business that much more difficult. deregulation within individual countries is also something of a two - edged sword. clearly it affords greater business opportunities to a firm, but it also raises challenges in managing compliance risk across a firm ’ s business units. for example, as a result of the passage of the gramm - leach - bliley act in the us, a single firm can now engage in commercial banking, investment banking, and insurance activities. the implication for the compliance function is that it must not only keep on top of issues within each of these diverse business lines but also the interactions between them - for example, in policing potential conflicts of interest across the firm. somewhat similarly, the overall compliance challenge for the firm is more than just the sum of the challenges from financial innovation, from globalization and from deregulation. there are interplays between these developments that add additional layers of complexity to the compliance challenge. level of scrutiny the second broad consideration i mentioned is the increased level of scrutiny of compliance in the u. s. and in other major financial markets - scrutiny that is driven by major industry and political events that have changed the legal and regulatory environment over the past five years. • the start of this decade saw a number of high - profile corporate scandals involving misconduct at the highest levels and breakdowns of internal control and compliance processes. in the u. s., extensive accounting fraud at enron and worldcom contributed to the passage of the sarbanes - oxley act, which clearly places new obligations on covered firms. other countries have not been immune to instances of accounting mismanagement, as evidenced by the example of parmalat in italy. • the events of september 11, 2001 and subsequent emphasis on terrorism were the impetus for the usa patriot act, which substantially increased the compliance obligations of banks and other financial services firms. in particular, while firms have long been expected to have knowledge of the people that they do business with, title iii of this act - which focuses on international money laundering - puts an even stronger onus on financial firms to

gradually spill over into nearby areas. with both commercial and residential rents, not to mention sales prices, high and rising in manhattan, northern new jersey has an opportunity to capitalize on its widening cost advantage by attracting companies and residents that value an urban location, but find new york city to be too pricey. and if preferences are indeed in the midst of a long - term shift toward urbanization, this bodes particularly well for new jersey ’ s own cities. with a major international airport and seaport, a 20 – 30 minute train ride from most of manhattan – but much cheaper rents – as well as a number of universities and a solid infrastructure, newark has strong potential to develop its prominence as a major local business, economic and cultural hub. concluding thoughts to conclude, i would like to say a few words concerning proposals to reform the federal reserve system. first, i concur with chair yellen that the federal reserve already is very transparent and accountable to congress and to the public. i share her strong belief that the independence of the central bank to make appropriate policy decisions consistent with its legislated mandates is essential to a nation ’ s economic well - being. with regard to the structure of the federal reserve system and the role of the regional banks, including the new york fed, i also agree with chair yellen that the system is working well, and i do not see a need for any substantive changes. i believe that the system has been designed appropriately so that a wide range of regional views are represented. at the same time, i believe that the federal reserve system ’ s monetary policy responsibilities are allocated appropriately by the federal open market committee, with new york playing an important role to ensure that monetary policy is executed effectively even during periods of duress. of course, the federal reserve system and the new york fed are not perfect institutions. that is why we always must strive, in an open and transparent manner, to improve what we do and how we do it, for the benefit of the american people. thank you for your kind attention. i would now be happy to take some questions. bis central bankers ’ speeches