available pricing data, are incorporated into statistical management systems that analyze lending patterns and help direct the examination process to aspects of the bank's program that may warrant a closer look. even in smaller banks where a statistical analysis cannot be performed, the hmda data can be used to start the fair lending review. however, as we know, hmda data have limitations. for example, the data do not include credit - risk factors such as credit scores and loan - to - value ratios. because of these limitations, the examination process looks at additional information about a lender's practices, and about particular loans, before any conclusions are drawn. examiners consider - together with hmda data - information derived from consumer complaints, risks apparent from various business lines, and the adequacy of the institution's compliance - risk management program. since examiners will be looking at the data, it would be advisable for a bank to make a review of the data a component of a comprehensive fair lending compliance program and community reinvestment act strategy. in fact, examiners will look carefully at analyses of hmda data performed by a bank and talk with the bank to understand the reasons for any disparities in lending patterns. the bank is probably in the best position to understand what the hmda data suggest about its ability to reach prospective borrowers. consequently, its own assessment is useful to an examiner establishing the fair lending examination scope. examiners want to know how banks have addressed any disparities and how the bank's analysis has led to any changes in controls that were made to ensure that policies are followed. i want to emphasize that, as with compliance - risk management programs, the breadth of a banking organization's program and system review should be commensurate with the size and complexity of its operations, the range of its products, and the demographics of its markets. beyond this review of hmda data, examiners evaluate whether an organization's fair lending compliance framework makes it possible to identify, monitor, and effectively control risks. examiners are looking for a clear articulation by the board of directors of the institution's lending strategy, including defined risk parameters and the execution of appropriate risk - measurement and riskmitigation initiatives. examiners will evaluate the extent to which management controls reflect the risk associated with the institution's lending strategy. as with the broader area of compliance - risk management, examiners will look closely at how the compliance culture established at

based on the new knowledge gained from this additional analysis, the u. s. agencies collectively decided to move ahead with our next proposal but adjust the plan for u. s. implementation of basel ii - - as announced in our joint news release on september 30. among a number of adjustments, we indicated our intention to extend the timeline for implementation and augment the transitional floors, which should provide bankers and regulators with more experience with basel ii before it is fully implemented in the united states. in terms of the specifics of the qis4 analysis, we learned that the drop in qis4 capital was largely due to the favorable point in the business cycle when the data were collected. while the previous qis3 exercise was conducted with data from 2002, a higher credit loss year, qis4 reflected the more benign credit conditions present in 2004. we learned that the dispersion among institutions was largely due to the varying risk parameters they used, permissible in the qis4 exercise, and also due to portfolio differences. that is, banks have different approaches to risk - management processes, and their models and databases reflect those differences. importantly, we also learned that some of the data submitted by individual institutions was not complete ; in some cases banks did not have estimates of loss in stress periods or used ad hoc estimates, which might have caused minimum regulatory capital to be underestimated. based on the results of qis4, the federal reserve recognizes that all institutions have additional work to do. in our view, the findings did not point to insurmountable problems, but instead identified areas for future supervisory focus. in that way, the qis4 analysis was critical in enabling us to move forward. we were also pleased to see that general progress is being made toward developing more risk - sensitive capital measures. as most of you know, the plans for u. s. implementation include a year of parallel run - - a period in which minimum regulatory capital measures for basel ii will be calculated parallel to the existing basel i measures - - as well as three years of transitional floors. the agencies expect to perform additional indepth analyses of the basel ii minimum capital calculations produced by institutions during the parallel - run and transitional - floor periods before we move to full implementation without floors. we want to ensure that the minimum regulatory capital levels for each institution and in the aggregate for the group of basel ii banks provide an adequate capital cushion consistent with safety and soundness. it is also helpful to remember that