keep in mind what we are trying to do. we are developing a replacement for the current capital accord, basel i, an agreement that simply is no longer consistent with the way the world's largest banks conduct their business. from the perspective of banks, supervisors, and, let us not forget, counterparties and stakeholders, capital is a cushion to ensure safety and soundness and to provide a benchmark against which the financial condition of banks can be measured. the large banks of the world have so changed the nature of how they do business that for them basel i neither provides an appropriate cushion nor an accurate risk benchmark. it must be replaced, particularly in a world whose financial markets are so interrelated that substantial difficulties at any one of the largest banks, let alone a failure, could place all the large banks of the world at risk. indeed, with due regard for an international level playing field, which i will discuss later, we should consider that the need of all of our countries for economic stability should be paramount in our supervisory and regulatory judgments. it is worth emphasizing that substantial disruptions in our financial systems linked to a large bank failure could raise the risk of a regulatory, if not legislative, response that would likely add restrictions greatly limiting the flexibility and efficiency of our banking system. in addition, perhaps one of the largest risks to the safety of the world banking system is the competitor - either local or cross - border - that erroneously evaluates risk, acts on that evaluation, and induces a competitive response that increases risk exposures broadly. for both reasons, action is imperative. it must be taken both by banks and by their supervisors to improve risk measurement and management ; to link to the extent we can the amount of regulatory minimum capital to the amount of risk taken ; to attempt to further focus the supervisor - bank dialogue on the measurement and management of risk and the risk - capital nexus ; and to make all of this transparent to the counterparties and uninsured depositors that ultimately fund - and hence share - the risk positions. in a rather large nutshell, that is what basel ii seeks to do, while at the same time seeking a level regulatory playing field for banks that compete across borders. cyclicality many critics - in and outside of the industry - have raised concerns that the framers of basel ii have unintentionally overlooked a byproduct of the package that will tend to destabilize the world's economies. with all the world '

less inclined at most income levels to invest in stocks, and black families are less likely to be owners of small business. although it is difficult to draw precise inferences regarding the key factors that have limited minority wealth accumulation, one endeavor should pay off in terms of greater saving by and higher net worth of minority households : increased efforts in financial education. we at the federal reserve have embarked on a program to raise the level of financial literacy in our country, and i believe that similar programs offered by private financial institutions will also yield a high return. thus, i encourage all of you to work to increase the knowledge of your depositors about financial issues. conclusion let me briefly conclude by restating my main points. probably nothing is more critical to the long - run well - being of the u. s. economy than ensuring high rates of productivity growth. productivity growth requires adequate levels of investment. while foreign saving is currently a feasible source of investable resources, it would be more economically advantageous in the longer run if we could raise the amount of household and government savings and close the gap between domestic investment and national savings. within the household sector, the accumulated saving of minority households, relative to their income, appears to be lower than that of nonminority households. in this regard, increased efforts at financial literacy programs can have a positive payoff, especially since at least one source of the minority - nonminority differential is apparently due to lower rates of return earned by minority households.