associated with the full range of the agencies ’ regulations that affect insured depository institutions. the board and the other banking agencies are in the midst of the first ten - year review cycle, and i am pleased to report that we are on track to complete this process by the 2006 deadline. the agencies already have solicited comments on four broad categories of regulations including those governing applications, activities, money laundering, and consumer protection in lending transactions - and have conducted outreach meetings throughout the country to encourage public participation in the egrpra process. in response to these efforts, the agencies have received comments from more than 1, 000 entities and individuals on ways to reduce the regulatory burden on banking organizations. the board will consider and incorporate the comments relevant to our regulations as we move forward with our own regulation review efforts. while the banking agencies can achieve some burden reductions through administrative action, congress plays a critical role in the regulatory relief process. many proposals to reduce regulatory burden require congressional action to implement. moreover, the congress has ultimate responsibility for establishing the overall regulatory framework for banking organizations, and through its actions congress can ensure that regulatory relief is consistent with the framework it has established to maintain the safety and soundness of banking organizations and promote other important public policy goals. interest on reserves and reserve requirement flexibility for the purpose of implementing monetary policy, the board is obliged by law to establish reserve requirements on certain deposits held at depository institutions. by law, the board currently must set the ratio of required reserves on transaction deposits above a certain threshold at between 8 and 14 percent. because the federal reserve does not pay interest on the balances held at reserve banks to meet reserve requirements, depositories have an incentive to reduce their reserve balances to a minimum. to do so, they engage in a variety of reserve avoidance activities, including sweep arrangements that move funds from deposits that are subject to reserve requirements to deposits and money market investments that are not. these sweep programs and similar activities absorb real resources and therefore diminish the efficiency of our banking system. the board ’ s proposed amendment would authorize the federal reserve to pay depository institutions interest on their required reserve balances. paying interest on these required reserve balances would remove a substantial portion of the incentive for depositories to engage in reserve avoidance measures, and the resulting improvements in efficiency should eventually be passed through to bank borrowers and depositors. besides required reserve balances, depository institutions also voluntarily hold two other types of balances in their reserve bank

- designed inflation - targeting regime can help to stabilize and anchor the public's expectations of long - run inflation ; well - anchored inflation expectations, in turn, promote macroeconomic stability and reduce the vulnerability of the domestic economy to exchange - rate fluctuations and other shocks. finally, inflation targeting and flexible exchange rates together serve to reduce the conflict between domestic economic stability and the free movement of capital across borders that is inherent in some other arrangements, most obviously the fixed - exchange - rate regimes favored by these countries in the past. how have inflation targets worked in latin america? as you can infer from the data i have already presented, the early returns are encouraging. among the major inflation - targeting countries, the inflation rate has recently been in the range of 1 to 3 percent in chile, 5 to 8 percent in colombia, 4 to 6 percent in mexico, 1 to 4 percent in peru, and ( as already noted ) 6 to 8 percent in brazil. central bankers in these countries are also making progress in adapting the new regime to deal with the special issues that arise in an emerging - market context. for example, inflation is typically more difficult to control in developing economies than in the industrialized economies because of the greater influence of exchange - rate fluctuations, the heavy weight of volatile food and commodity prices in the consumer basket, and the volatility of the public's inflation expectations resulting from a history of high and unstable inflation. emerging - market central banks that adopt inflation targeting must not only develop the forecasting and monetary - policy tools needed to meet their targets, they must also choose target ranges that are not so narrow as to be unachievable but narrow enough to allow monetary policymakers to build credibility ( fraga, goldfajn, and minella, 2003 ). as the list of middle - income inflation targeters grows - outside of latin america, it now includes, among others, the czech republic, hungary, poland, south korea, thailand, south africa, and israel - and as more experience is gained, knowledge about how to best manage this approach in the emerging - market context will grow as well. underlying causes of improved inflation performance i do not mean to claim, however, that latin america conquered inflation simply by choosing a particular framework for monetary policy. rather, my more fundamental point is that inflation has declined in latin america because new ideas and new political realities have fostered the development of economic institutions and policies that promote macroeconomic stability more generally. recent changes in the policy