, and to limit the requirement of basel ii to only a small number of banking institutions that fit the definition of large, complex, and internationally active. it is also important to recognize that basel ii is a complete capital framework consisting of three pillars. while much of the focus to date has been on the calculation of minimum regulatory capital in pillar i, it should be remembered that pillar 2, which provides for supervisory oversight of an institution ’ s overall capital adequacy, and pillar 3, which requires enhanced transparency via disclosure, are also important parts of this new framework. let me assure you that we at the federal reserve would not be pursuing basel ii if we thought that it would in any way undermine the strong capital base that u. s. institutions now have. as a central bank and a supervisor of banks, bank holdings companies, and financial holding companies, the federal reserve is committed to ensuring that the basel ii framework delivers a strong and risk - sensitive base of capital for our largest and most complex banking institutions. that is why we supported moving ahead with the npr, which includes modifications to address concerns identified in the fourth quantitative impact study, known as qis4, and additional safeguards to ensure strong capital levels during the transition to basel ii. we will remain vigilant in monitoring and assessing basel ii ’ s impact on individual and aggregate minimum regulatory capital levels on an ongoing basis. as an extra degree of precaution, the u. s. banking agencies also decided to delay for a year the start of the parallel - run period. starting with the parallel run, and both during and after the transition to basel ii, the federal reserve will rely upon ongoing, detailed analyses to evaluate the results of the new framework to ensure prudent levels of capital. basel ii represents a major shift in how we think about regulatory capital, especially as we will implement it in the united states. it is complex, reflecting the complexity of risk measurement and management for the largest, most complex banking institutions, and the banking institutions and the supervisors will need to have ongoing dialogue and work diligently to make sure it is working as we expect it to. but we believe it is a powerful approach to making regulatory capital more risk - sensitive. to be quite clear, the federal reserve believes that strong capital is critical to the health of our banking system, and we believe that basel ii will help us continue to ensure that u. s. banks maintain capital levels that serve as an appropriate cushion against their risk -

services themselves. i certainly recognize and appreciate these challenges. but before a bank begins to engage in or offer crypto - asset - related services, it must seriously and carefully consider the risks involved — both to the bank and its customers. the recent turmoil in the digital - asset industry only underscores that point. federal reserve staff is working to articulate supervisory expectations for banks on a variety of digital asset - related activities, including custody of crypto - assets facilitation of customer purchases and sales of crypto - assets loans collateralized by crypto - assets, and issuance and distribution of stablecoins by banking organizations. we understand that everyone involved in this space is seeking clarity. one of the most important tools that we have as a regulator is the ability to clearly articulate our supervisory expectations. it is also our most direct path to encouraging and supporting responsible innovation. earlier this week, we released supervisory guidance addressing banks that are engaging in or seeking to engage in crypto - asset related activities. 3 this guidance will provide banks with additional information about the risks of crypto activities and remind them to ensure that the activities are legal, and they should have adequate systems, risk management, and controls in place to conduct the activities in a safe and sound manner consistent with applicable law. critically, one important element of this release is that firms should contact their supervisors about these types of activities and expect that supervisory staff will provide timely feedback, as appropriate. 2 / 4 bis central bankers'speeches based on my conversations with bankers across the country, i believe that providing the rules of the road — highlighting the risks we are most concerned about and laying out our expectations for how those risks should be managed — is invaluable for banks considering whether and how to innovate. artificial intelligence the federal reserve is taking a similar approach with respect to banks'use of ai. last year, the fed joined with four other financial agencies to issue a request for information and comment on financial institutions'use of artificial intelligence, including machine learning. 4 as noted in that document, banks are using ai in a variety of ways, including fraud monitoring, personalization of customer services, credit decisions, risk management, and textual analysis. these applications of ai can, to varying degrees, involve risk - management challenges around issues such as explainability, data governance, cybersecurity, third - party risk management, and consumer compliance. the banking agencies received over 100 responses to the request for information. those responses