puerto rico, and the u. s. virgin islands. this area includes enormous diversity in institutions from state member banks with total assets of less than $ 100 million operating in a local community to bank holding companies with trillions of dollars of assets operating on a global scale. our staff assesses the safety and soundness of domestic banking institutions and operations of foreign banking organizations in the district through onsite evaluations and offsite financial analysis and surveillance. one of our fundamental responsibilities is to ensure that each institution has in place the appropriate risk identification and risk management processes that are necessary for prudent banking. we also analyze issues and industry developments to identify emerging risks and to contribute to the development of domestic and international supervisory policy. i ’ ll return to a discussion of emerging risks later in my talk. bis central bankers ’ speeches the supervision group at the new york fed works with our colleagues around the federal reserve system to develop and implement the system ’ s supervisory programs. this includes working through governance structures like the large institution supervision coordinating committee ( liscc ) that oversees supervision for the largest, most systemically important institutions in the u. s. we are also involved in similar system - wide committees for other types of institutions such as community banks, regional banks, foreign banks, and other large banking institutions, as well as consumer protection. i ’ ll speak mostly today about our supervisory responsibilities for the largest firms, but will note that we recently hosted a conference at the new york fed focusing on the role of community banks. for the largest firms, we actively participate in system - wide horizontal examinations such as the comprehensive capital analysis and review, or ccar, which is the annual process for evaluating capital adequacy of the largest firms that began last week. we are actively involved in other horizontal programs such as the comprehensive liquidity analysis and review ( clar ), and the supervisory assessment of recovery and resolution preparedness ( srp ). clar is the federal reserve ’ s annual, horizontal, forward - looking program to evaluate the liquidity position and liquidity risk management practices of liscc firms. srp is the federal reserve ’ s annual horizontal review of the liscc firms ’ options to support recovery and progress in removing impediments to orderly resolution. these three programs form the foundation for the horizontal aspects of the system ’ s supervisory program for the largest firms. the supervision group at the new york fed plays a strong role in developing and executing these initiatives. in parallel

. with this monetary easing and with the strengthening in the pace of economic activity in the second half of the year, we now project annual average growth of between 2 and 3 per cent in 2001. for next year, we see output expanding at a rate slightly above the bank's estimate of potential output growth of 3 per cent. consistent with the bank's expected path of output growth, core cpi inflation will likely average somewhat below 2 per cent over the remainder of 2001, then move back up to 2 per cent by the end of 2002. total cpi inflation is expected to be volatile over the next few months, before moving down to about 2 per cent by the end of the year if world energy prices remain close to current levels. i would now like to say a word about recent developments in financial markets. these developments have essentially reflected the increased concerns and uncertainty surrounding world economic prospects. in the circumstances, global investors have, once again, sought the safety and liquidity of u. s. financial assets. and this has led to an appreciation of the u. s. dollar against all major currencies despite the marked economic slowdown in that country. although the canadian dollar has remained firm against other major currencies, the decline in its value against the u. s. dollar until just recently has been the subject of much public commentary in canada. since the exchange rate is a key price in our economy, the bank recognizes that movements in its value can be a source of concern for canadians. i want to assure you that the bank monitors market developments very closely. and we carefully assess the implications of currency movements for aggregate demand and inflation in canada. in closing, let me reiterate that the bank remains generally positive about canada's economic prospects in the period ahead. we continue to expect a pickup in growth in the second half of this year and further strengthening in 2002. the main risk to this outlook is the timing and strength of the projected pickup in u. s. growth. given this uncertainty, we will continue to monitor developments closely and we will respond appropriately.