federalreserve. gov / publications / files / 202305 - supervision - andregulation - report. pdf. - 9let me turn to supervision of a specific risk : commercial real estate ( cre ). the reduced demand for office space and higher interest rates have put pressure on some cre valuations, particularly in the office sector. supervisors have been closely focused on banks ’ cre lending in several ways : how banks are measuring their risk and monitoring the risk, what steps they have taken to mitigate the risk of losses on cre loans, how they are reporting their risk to their directors and senior management, and whether they are provisioning appropriately and have sufficient capital to buffer against potential future cre loan losses. stepping back, because of the heightened risk environment and heightened supervisory attention, the federal reserve has issued more supervisory findings and downgraded firms ’ supervisory ratings at a higher rate in the past year. in addition, we have increased our issuance of enforcement actions. these actions do not represent a change in policy ; they reflect the impact of the changing economic, interest rate, and financial environment on a bank ’ s financial resources. we want and expect supervisors to help banks focus adequate attention on the areas that matter most for the particular bank, whether that is interest rate risk, cre, or cybersecurity vulnerabilities, to name a few. as noted in the svb report, we continue to evaluate whether we should temporarily require additional capital or liquidity beyond regulatory requirements where the firm has trouble in managing its risks. higher capital or liquidity requirements can serve as an important safeguard until risk controls improve, and they can focus management ’ s attention on the most critical issues. other supervisors use these types of - 10 tools, and we can draw from these experiences as we consider what may be appropriate for our supervised banks. 10 improving the agility of supervision another area of focus has been to improve the agility of supervision. supervisors must be able to make judgments on a forward - looking basis built on imperfect information, while remaining fair, evidence - based, and consistent. in the case of svb, supervisors delayed action to gather more evidence even as weaknesses were growing. this delay meant svb ’ s problems persisted past the time when it had options to address them, and those problems got worse. drawing from this experience, we have been looking to enhance our supervisory programs so that we correctly balance a strong process with the need to act based on

improving agility of supervision. we are taking many steps to strengthen supervision, some of which have immediate influence on our work and some which will bear fruit over the long term. the goal of supervision let me start by explaining the goals and benefits of supervision. the mission of bank supervision is to promote a safe, sound, and efficient banking system to support a strong economy. 3 as i have spoken about many times before, banks play a critical role in the economy by providing deposit products, credit, and other financial services to individuals and businesses. the nature of banking — and the interconnectedness of the system — pose vulnerabilities to individual banks and to the banking system. deposit insurance and other forms of governmental support help to protect depositors, banks, and the broader economy, but also add to moral hazard, in that banks do not internalize the full costs of their risks. regulation and supervision help to make it more likely that banks manage their risks prudently given the costs that their failure can pose on society, and that banks have the capacity to support the economy through good times and bad. through regulation, the federal reserve board sets the minimum requirements for banks. 4 these regulations require banks to have systems to manage their risks, and to for more on bank supervision, please see the federal reserve ’ s website at : https : / / www. federalreserve. gov / supervisionreg / understanding - federal - reserve - supervision. htm in this speech, references to “ banks ” includes banks, as well as their holding companies. bank holding companies constitute the largest segment of institutions supervised by the federal reserve, but the federal - 3maintain capital and liquidity in light of those risks. regulations are tiered depending on bank risks, with the larger, more complex banks subject to more stringent requirements. we need to get regulation right, so that the baseline level of resilience in the system is strong enough. the requirements set in regulation, however, may not be sufficient for banks with activities or profiles that are different from or are riskier than a typical bank. supervision helps to fill in these gaps. supervisors do not manage banks. instead, a supervisor ’ s job is to evaluate a bank ’ s material risks in light of its operations, and to help make sure that the bank has sufficient governance and controls, capital, and liquidity to operate their firm, both in normal times, and in stressful ones. supervisors focus on the unique risks of