in the u. s. economy. the voting members of the committee are the members of the board of governors and five reserve bank presidents. the president of the federal reserve bank of new york serves on a continuous basis ; the presidents of the other reserve banks serve one - year terms on a rotating basis, beginning on january 1 of each year. all the reserve bank presidents participate fully in the various discussions, regardless of whether they currently have a vote in the policy decision. by law, the fomc must meet at least four times each year in washington, dc. since 1980, eight regularly scheduled meetings have been held each year. if circumstances require consultation or consideration of an action between regularly scheduled meetings, members may be called upon to participate in a special meeting or a telephone conference. – 2 – so what happens at these meetings? the order and structure of these meetings may change over time, but has been pretty much fixed during my term on the board. before each regularly scheduled meeting of the fomc, system staff members prepare written reports on past and prospective economic and financial developments, which are sent to committee participants. at the meeting itself, staff members present oral reports on the current and prospective business situation, conditions in financial markets and international economic and financial developments. after these reports, each committee participant, voting and nonvoting, expresses his or her views on the current state of the economy and prospects for the future. after a short coffee break, we have a staff presentation on the alternatives we face in setting monetary policy. at that point, the chairman gives his view of the economy and makes a suggestion for the appropriate direction of policy. each committee member then responds to the chairman ’ s suggestion, in the process setting out a preferred choice for policy. after this second “ go - around, ” we take a formal vote on the target federal funds rate for the period until the next meeting. at this point, the focus is on the voting members, who, as i noted, include all of the governors and five of the 12 presidents. generally, an announcement of a change in interest rates, if any, is made at about 2 : 15 in the afternoon. a full set of meeting minutes is made available after the subsequent meeting. let me turn now to a discussion of monetary policy and the outlook for the u. s. economy. of course, the views i shall be expressing are my own and are not necessarily shared by the fomc or the board of governors. the

portfolios that retain the responsibility of servicing the loans, buying and selling financial instruments for customers, and growth in business lines where fees are generated by transactions and account processing. these activities have little exposure shown on the balance sheet at a moment in time, but failure to operate complex systems and negotiate complex financial deals in a sound manner can lead to large loss exposures given the volume of activity that runs through the line of business. they also use sophisticated models to manage credit, market, and interest rate risks. poor data integrity, model reliability or lack of sufficient controls, can create losses when management action relies on the faulty results of decision models. finally, the complexity of these organizations makes it more difficult for executive management to view risk in a comprehensive way, both in terms of aggregating similar and correlated risks, but also in identifying potential conflicts of interest between the growth of a line of business and the reputation, legal, and compliance risks of the firm as a whole. in recent years, large financial institutions have reported losses from breaks in these operating controls that in some cases have exceeded those in credit or market risk. the basel ii framework should improve supervisors'ability to understand and monitor the risk taking and capital adequacy of large complex institutions, thereby allowing regulators to address emerging problems more proactively. it should also enhance the ability of market participants, through public disclosures, to evaluate the risk positions at those institutions by providing much better risk measures. the advanced approaches under basel ii, which include the advanced internal ratings - based approach ( or a - irb ) for credit risk and the advanced measurement approaches ( or ama ) for operational risk, offer particularly good improvements in terms of risk sensitivity, since they incorporate advanced risk - management processes already used today by best - practice institutions. indeed, the expected improvements in risk measurement and risk management form the core of our reasons for proposing basel ii in the united states. its advanced approaches create a rational link between regulatory capital and risk management. under these approaches, institutions would be required to adopt a set of quantitative risk - measurement and sophisticated risk - management procedures and processes. for instance, basel ii establishes standards for data collection and the systematic use of the information collected. these standards are consistent with broader supervisory expectations that high - quality risk management at large complex organizations depends upon credible data. enhancements to technological infrastructure - - combined with detailed data - - will, over time, allow firms to better track exposures and manage risk. the emphasis in basel ii