reflect the changes in how banks engage in this process. it is absolutely critical that innovation not distract banks and regulators from the traditional risks that are omnipresent in the business of banking, particularly credit, liquidity, concentration, and interest rate risk. 3 these more traditional risks are present in all bank business models but can be especially acute for banks engaging in novel activities or exposed to new markets, including crypto - assets. 4 whatever the cause, many traditional risks can be mitigated with appropriate risk - management and liquidity planning practices, and effective supervision, and without stifling the ability of banks to innovate. today, i will address three issues related to innovation. first, i will briefly discuss how bank regulation and supervision can best support responsible innovation. second, i will touch on the unique challenges that apply to smaller and community banks pursuing innovation. finally, i will mention a few key actions that the federal banking regulators have taken to date, and how i think about future regulatory and supervisory actions to support innovation. and before i conclude, i will also quickly touch on a few other issues that may be of interest to you. as part of our ongoing outreach and dialogue to community banks, i along with colleagues at the federal reserve bank of kansas city conducted an “ ask the fed ” session this past december, discussing unrealized losses at community banks in a rising rate environment. ask the fed, a program of the federal reserve system, “ a discussion of unrealized losses at community banks in a rising interest rate environment ” ( december 16, 2022 ). see board of governors of the federal reserve system, federal deposit insurance corporation, office of the comptroller of the currency, “ joint statement on liquidity risks to banking organizations resulting from cryptoasset market vulnerabilities, ” news release, february 23, 2023, https : / / www. federalreserve. gov / newsevents / pressreleases / files / bcreg20230223a1. pdf. - 4supporting responsible innovation in the past, i have spoken about the principles that i believe should guide bank regulation and supervision. 5 i have noted the value of independence — tempered by public accountability — in the fed ’ s role as a bank supervisor. i have also stressed the need for clear rules of engagement and predictability in the bank applications process. and i have emphasized that transparency of expectations in rules and guidance are critical to

this low level until we are confident that the economy has weathered the storm and is on track to achieve our maximum - employment and price - stability goals. even more importantly, we have acted to safeguard financial markets in order to provide stability to the financial system and support the flow of credit in the economy. as a result of the economic dislocations caused by the virus, some essential financial markets had begun to sink into dysfunction, and many channels that households, businesses, and state and local governments rely on for credit had simply stopped working. we acted forcefully to get our markets working again, and, as a result, market conditions have generally improved. many of the programs we are undertaking to support the flow of credit rely on emergency lending powers that are available only in very unusual circumstances — such as those we find ourselves in today — and only with the consent of the secretary of the treasury. we are deploying these lending powers to an unprecedented extent, enabled in large part by the financial backing from congress and the treasury. we will continue to use these powers forcefully, proactively, and aggressively until we are confident that we are solidly on the road to recovery. 1 / 2 bis central bankers'speeches i would stress that these are lending powers, not spending powers. the fed is not authorized to grant money to particular beneficiaries. the fed can only make secured loans to solvent entities with the expectation that the loans will be fully repaid. in the situation we face today, many borrowers will benefit from these programs, as will the overall economy. but there will also be entities of various kinds that need direct fiscal support rather than a loan they would struggle to repay. our emergency measures are reserved for truly rare circumstances, such as those we face today. when the economy is well on its way back to recovery, and private markets and institutions are once again able to perform their vital functions of channeling credit and supporting economic growth, we will put these emergency tools away. none of us has the luxury of choosing our challenges ; fate and history provide them for us. our job is to meet the tests we are presented. at the fed, we are doing all we can to help shepherd the economy through this difficult time. when the spread of the virus is under control, businesses will reopen, and people will come back to work. there is every reason to believe that the economic rebound, when it comes, can be robust. we entered this turbulent period on a strong economic footing