sophisticated with more differentiation between risks : the separation of credit and market risk ; the recognition of operational risk as a distinct category ; and the importance of reputational risk. notwithstanding that the nature and size of our operations are different and smaller than many private sector institutions, the bank is exposed to many of these same risks. in managing these risks, we have wanted to ensure that our practices are consistent with best practice in the private sector, to the extent that this is applicable to a central bank. we have invested heavily in technology to allow management of the risks on a consolidated basis and where appropriate in real time. we have also instituted a number of organisational changes, setting up an assets and liabilities committee which i chair and which reviews at senior level the management of our balance sheet ; and a risk monitoring department ( based in part on the middle office model of the private sector ), independent from our banking line management. above this, like public companies, we have a number of board sub - committees, and in particular an audit committee, taking reports from the internal and external audit, looking carefully at our internal systems and controls and our policies and processes for management of the main financial, operational and reputational risks. like public companies, and no doubt many of you here who are directors of public companies, we are working hard to ensure full compliance with the turnbull report. personnel policies finally i would like to mention the changes we have made to our personnel policies. i have already indicated that the changes imposed by the 1997 proposals, together with the changes brought about by a changing environment, placed a heavy demand on the flexibility of our workforce. we have needed to increase the analytical capacity of the bank, in part by additional recruitment of economists. indeed we are among the largest employers of professional economists in the country. we have also substantially upgraded our programmes under which individuals are able to go back to full - time education supported by the bank to obtain the masters, and in some cases doctorate degrees, that we need to keep us at the forefront of thinking on economic and financial issues. we have reorganised the rank structure within the bank. for some time, we had two broad categories of staff : officers and officials. counter - intuitively, the officials were senior to the officers, rather like the civil service of many years ago when administrative grades were senior to the executive grades. we have merged the officers and officials grading into one structure, taking out several layers while we were at it - although i would have

. conclusion i appreciate the opportunity to discuss the board ’ s legislative suggestions and priorities concerning regulatory relief. the board would be pleased to work with the committee and your staffs as you seek to develop and advance meaningful regulatory relief legislation that is consistent with the nation ’ s public policy objectives. appendix : regulatory relief proposals supported by the board of governors of the federal reserve system 1. authorize the federal reserve to pay interest on balances held at reserve banks amendment gives the federal reserve explicit authority to pay interest on balances held by depository institutions at the federal reserve banks. 2. grant the board additional flexibility in establishing reserve requirements amendment provides the federal reserve with greater flexibility to set the ratio of reserves that a depository institution must maintain against its transaction accounts below the current ranges established by the monetary control act of 1980. 3. authorize depository institutions to pay interest on demand deposits amendment repeals the provisions in current law that prohibit depository institutions from paying interest on demand deposits. if adopted, the amendment would allow all depository institutions that have the authority to offer demand deposits to pay interest on those deposits. 4. ease restrictions on interstate branching and mergers in a competitively equitable manner amendment affirmatively authorizes national and state banks to open de novo branches on an interstate basis. currently, banks may establish de novo branches in a new state only if the state has affirmatively authorized de novo branching. this existing limitation places banks at a disadvantage to federal savings associations, which currently have the ability to branch de novo on an interstate basis. the amendment also would remove a parallel provision that allows states to impose a minimum requirement on the age of banks that are acquired by an out - of - state banking organization. the amendment would not allow industrial loan companies ( ilcs ) that operate under a special exemption in federal law from opening de novo branches on a nationwide basis. the corporate owners of these ilcs are not subject to the type of consolidated supervision and activities restrictions that generally apply to the corporate owners of other banks insured by the federal deposit insurance corporation ( fdic ). granting exempt ilcs nationwide branching rights also would be inconsistent with the terms of their special exemption in federal law. 5. small bank examination flexibility amendment would expand the number of small institutions that may qualify for an eighteen - month ( rather than a twelve - month ) examination cycle. under current law, an insured depository institution must have $ 250 million or less in total assets to qualify for an eighteen - month examination cycle.