as a set of responsibilities for both banks and regulators that are aligned to assure the public and markets that risks can be fully understood and accurately estimated and priced. in some ways, this perspective is not new territory for bank regulators. the federal reserve, for example, issued supervisory guidance in 1995 that identified the six primary risks that remain the focus of its supervisory program, and reputational risk is among them. 5 having the reasons for ineffective supervision can be explored separately ; they are beyond the scope of my remarks today. it is worth considering, however, whether the reputation of large banks would be enhanced by a belief that “ regulatory capture ” and other manifestations of ineffective supervision could be minimized. see board of governors of the federal reserve system, division of banking supervision and regulation ( 1995 ), “ rating the adequacy of risk management processes and internal controls at state member banks and bank holding companies, ” supervision and regulation letter 95 - 51 ( sup ) ( november 14 ). bis central bankers ’ speeches said that, it is still a risk that both banks and supervisors should learn how to identify ex ante rather than ex post. 6 so, while reputational risk is not a new concept by any means, it is an area that is ripe for additional work. for example, the enterprise risk management framework of the committee of sponsoring organizations of the treadway commission – the so - called “ coso standard ” – does not address reputational risk. likewise, the basel capital frameworks exclude reputational risks from regulatory capital requirements. 7 accordingly, the current approach to managing reputational risk is largely reactive rather than proactive. banks and examiners tend to focus their energies on handling the threats to their reputations that have already surfaced. this is not risk management ; it is crisis management – a reactive approach aimed at limiting the damage. instead, we should think about a supervisory approach that incentivizes bank managers to sufficiently contemplate, quantify if necessary, and control the factors that affect the level of such risks before they fully emerge in an unmitigated form. the way that the federal reserve supervises banking organizations may help identify risks sooner. for all banking organizations, the supervisory program here does not simply rely on an annual onsite examination. the federal reserve supplements its regular examination activities with a program of continuous monitoring between examinations. one of the key objectives of this program is to identify emerging risks and communicate with other regulators and the banks an updated risk assessment and

an improvement that is generally associated with capital deepening, an increase in the amount of equipment each worker has at its disposal, as a result of the strength of investment in this expansion. as such, this improvement in productivity growth may itself be transitory, part of a one - time increase in the level of productivity associated with a transition to a higher capital - to - labor ratio. nevertheless, even a couple of tenths improvement in productivity growth, if sustained for some period, would give an important boost to higher living standards over time. but this upward adjustment in my estimate of the productivity trend plays only a negligible role in explaining how we have managed such exceptional economic performance over the last couple of years. it goes in the right direction, but it is simply too small to carry much of the burden. the major player in my view, in addition to the decline in nairu, is the coincidence of favorable supply shocks. the relative weights here are very important because they affect the challenge for monetary policy. challenges for monetary policy the challenge for monetary policy, as always, is to sustain the best possible economic performance. the emphasis here is on the “ possible. ” sometimes we are expected to deliver more than what is possible. we aim for maximum sustainable growth and maximum sustainable levels of output and employment. the emphasis here is on “ sustainable. ” trying to do more threatens to introduce unnecessary instability into the economy and ultimately to cut short an expansion that otherwise has the potential to continue for some time. trying to do more threatens to give back some of the reduction in inflation that has moved the u. s. to a position very close to the federal reserve ’ s objective of price stability. the bottom line is that it is essential that growth slow from the near 4 % over 1997 to and perhaps below trend for a while to allow the economy to move toward a more sustainable state. prospects there are two sets of crosscurrents that are likely to shape the outlook immediately ahead. first, there is a tug of war between the continued exceptional momentum in private domestic demand and the external drag from the asian crisis. the latter shock also reinforces the restraint that had been projected from a cumulative appreciation of the dollar that predated the asian crisis. the result should almost certainly be some slowing in the expansion, relative to 1997. still, the sharper - than - expected decline in oil prices, the decline in long - term bond yields and the further rise in equity prices in recent months are providing