reserve, r & s is itself the source for some of the most important data on the economy and the financial system. our consumer credit data provide financial markets and the public with a vital indicator of the strength of household spending and balance sheets. each month, the industrial production report gives us insights into how well certain sectors of the economy, especially in the manufacturing realm, are operating. r & s is also responsible for the financial accounts of the united states, a quarterly compendium of assets, liabilities, and transactions for different segments of the economy. and every three years, r & s conducts the survey of consumer finances, a premier source of detail and insights about how households are faring in the economy. the latest survey was published just last month. these and other data series produced by r & s are a significant public service. 1 / 2 bis - central bankers'speeches i want to focus in more detail on the forecast, perhaps the most important of r & s's roles. the u. s. economy baseline forecast produced by r & s, along with the simulation of a half - dozen plausible alternative paths, constitutes the largest part of the essential bedrock that enables our pursuit of our dual - mandate goals. some people are attracted to extremely challenging tasks. the people of r & s are those people, having chosen such a task in forecasting the path of the u. s. economy, eight times a year for fomc meetings, with ongoing updates between meetings. they do this work on the biggest stage and with the highest stakes, knowing that the economy very often surprises us. several qualities are required to do this work well. i will start with an intense commitment. the work requires everything you have to give. you have to love this work to do it well. the job also requires integrity - policymakers count on r & s to give us their best thinking, not shading the results for any reason. regular forecasting also demands a systematic approach and a high degree of intellectual rigor. ask stacey and her colleagues to explain a certain aspect of the forecast, and you will find that they have a clear explanation grounded in a rigorous framework. that intellectual rigor has to be combined with flexibility and agility. economic models can do a reasonably good job of capturing the working of the economy over past decades. of course, even with state - of - the - art models and even in relatively calm times, the economy frequently surprises us. but our economy is flexible

enhanced risk management practices in their local industry. but we must appreciate that such experience accumulates only over time. in the interim, national authorities may well want to consider supplementing their supervisory and regulatory framework with quantitative restrictions that limit risk - taking. when the skills to interpret regulations flexibly are in short supply, national authorities might prefer to bind themselves to simple rules. such rules presumably would be structured to prevent the outsized behaviors that in the past have preceded financial crises, such as extremely rapid growth in lending for property development or a large share of real estate loans on depositories ’ balance sheets. i would also like to point out that the institutional depth to both manage and examine complex banking organizations need not always be home grown. while i appreciate the natural sensitivities of countries trying to build their own economic capabilities, emerging market economies seeking to strengthen their own financial systems should not restrict – and, indeed, may want to encourage – entry by foreign banks. foreign banks will bring with them the human and financial capital that can raise the level of financial expertise for the entire industry, to the benefit of local banking services. the presence of such global banks will also foster the development of complementary institutions, such as credit - rating agencies and accounting firms, that will be valuable for both local institutions and national supervisors. those foreign banks also will likely have access to strong parents, implying that the resources that can be applied to quelling financial turmoil will extend beyond the limits of the national central bank. by international organizations we must also recognize that the agendas for strengthening banking systems in industrial and emerging market economies are intertwined. there are important cooperative advances to be made, starting with progress on monitoring compliance with international standards. but all the effort in establishing standards and guidelines will go for naught if there are not clear, comprehensive procedures for monitoring the performance of banks in meeting them and incentives for adopting them. part of this, no doubt, will require strengthening cooperation among national supervisors. many financial institutions have increased their global reach, and those who have not are still affected by development abroad. supervisors must therefore also strengthen their connections outside their national markets. while the events of the last few years that have buffeted world markets caught us by surprise, they were not a total surprise. with the benefit of hindsight, we can pick out warning signals in some countries that were missed in advance of the asian crisis, including an overreliance on leverage, a troubling buildup of short - term financing, and an