’ t know how the pandemic will proceed and how that will affect the u. s. economy, but i think we are currently on a good path, and our policy is in a good place. thank you again for inviting me to speak to you today, and i would be happy to respond to your questions. 1 see michelle w. bowman ( 2021 ), “ the economic outlook and prospects for small business, ” speech delivered at the economic club of oklahoma, oklahoma city, oklahoma ( via webcast ), march 22. 3 / 3 bis central bankers'speeches

intimated in the analysis is that, given the risks over - regulation entails, an alternative approach might be to economise on regulatory changes and to increase supervisory intensity instead. that is to say, there should be an attempt to contain the avalanche of new regulatory requirements applicable across the board, replacing some of them with intrusive supervisory measures, adapted to each bank ’ s specific situation. this is admittedly a very attractive idea which i would like to explore in the rest of my speech. supervisory challenges until recently, core supervisory actions in many jurisdictions had focused, perhaps excessively, on the surveillance of banks ’ solvency through the monitoring of capital ratios as defined under current regulations. it is nevertheless true that the implementation of basel pillar 2 on the basis of the regular supervisory review exercises has somewhat changed the situation. pillar 2 allows specific requirements to be made of each bank on the basis of its risk profile so as to cover aspects not contained in pillar 1 ( minimum regulatory capital ratios ). in that way the supervisor can regulate solvency requirements by adjusting them to each bank ’ s situation, thereby bis central bankers ’ speeches extending the supervisor ’ s discretion and reinforcing its role, while reducing commensurately the relative significance of the general solvency requirements set in the regulations. likewise, the inclusion of stress tests as a supervisory tool extends the supervisor ’ s capacity to impose capital requirements or other constraints on banks when this is necessary to withstand adverse scenarios, even if such scenarios are rather unlikely. once again, this tool broadens the weight of supervisory action. that said, in order to optimise the scope of supervision, supplementary instruments – that are not always available in accordance with the prudential regulations in force – are needed. for instance, not in all jurisdictions must the supervisor expressly authorise the eligibility of certain capital instruments, the acquisition of qualifying holdings in other financial institutions or dividend pay - outs charged to reserves. above all, effective supervision should occasionally be based on discretionary actions rather than mere application of the instruments expressly provided for under the regulations. in particular, the supervisor should have the real capacity to influence bank managers ’ decisions through moral suasion and to formulate non - legally binding recommendations, in the sure knowledge that they will in practice be very widely followed. supervisory actions would otherwise be excessively hampered by a regulatory framework which, despite having been honed in recent years, can hardly envisage all situations of supervisory significance or include the full