all sizes across the country significantly improves the federal reserve ’ s ability to effectively carry out its central - bank responsibilities. perhaps most important, as this crisis has once again demonstrated, the federal reserve ’ s ability to identify and address diverse and hard - to - predict threats to financial stability depends critically on the information, expertise, and powers that it has as both a bank supervisor and a central bank. not only in this crisis, but also in episodes such as the 1987 stock market crash and the terrorist attacks of september 11, 2001, the federal reserve ’ s supervisory role was essential for it to contain threats to financial stability. 3 the federal reserve ’ s making of monetary policy and its management of the discount window also benefit from its supervisory experience. 4 notably, the federal reserve ’ s role as a supervisor of state member banks of all sizes, including community banks, offers insights about conditions and prospects across the full range of financial institutions, not just the very largest, and provides useful information about the economy and financial conditions throughout the nation. such information greatly assists in the making of monetary policy. the legislation passed by the house last december would preserve the supervisory authority that the federal reserve needs to carry out its central banking functions effectively. improving the federal reserve ’ s supervision of banking organizations the federal reserve strongly supports ongoing efforts in the congress to reform financial regulation and close existing gaps in the regulatory framework. 5 while we await passage of for further discussion, see the bernanke letter to dodd and shelby in note 2. our ability to monitor key payment and settlement systems also depends critically on our supervisory powers, as several key institutions involved in payments and settlements have state member bank or edge charters. without bank supervisory authority, the federal reserve would have no ability to examine or regulate such institutions. lack of strong consolidated supervision of systemically critical firms not organized as bank holding companies proved to be the most serious regulatory gap. in addition, under the gramm - leach - bliley act of 1999, the federal reserve ’ s consolidated supervision of bank holding companies was both narrowly focused on the safety and soundness of their bank subsidiaries and heavily reliant on functional supervisors of the bank and regulated nonbank subsidiaries of these companies ; in turn, the functional supervisors themselves were statutorily focused only on the safety and soundness of the specific entities they regulated. none of the federal regulators had sufficient authority to focus on the systemic risk that large banking organizations posed. comprehensive reform legislation, we have been conducting an intensive self - examination

capitalize on it. fostering education that will enable individuals to overcome their reluctance or inability to take full advantage of technological advances and product innovation in the financial sector can increase economic opportunity. as market forces continue to expand the range of providers of financial services, consumers will have more choice and flexibility in how they manage their personal finances. they will also need to learn ways to use new technologies and to make wise financial decisions. in considering means to improve the financial status of families, education can play a critical role by equipping consumers with the knowledge required to choose from among the myriad of financial products and providers. financial education is especially critical for populations that have traditionally been underserved by our financial system. in particular, financial education may help to prevent vulnerable consumers from becoming entangled in financially devastating credit arrangements. regulators, consumer advocates, and policymakers all agree that consumer education is essential in the quest to stem the occurrence of abusive, and at times illegal, lending practices. an informed borrower is simply less vulnerable to fraud and abuse. financial education can empower consumers to be better shoppers, allowing them to obtain goods and services at lower cost. this process effectively increases consumers ’ real purchasing power, and provides more opportunity for them to consume, save, or invest. in addition, financial education can help provide individuals with the knowledge necessary to create household budgets, initiate savings plans, manage debt, and make strategic investment decisions for their retirement or for their children ’ s education. having these basic financial planning skills can help families to meet their near - term obligations and to maximize their longer - term financial well - being. the importance of basic financial skills underscores the need to begin the learning process as early as possible. indeed, improving basic financial education at the elementary and secondary school level will provide a foundation of financial literacy that can help prevent younger people from making poor decisions that can take years to overcome. in particular, it has been my experience that competency in mathematics - - both in numerical manipulation and in understanding the conceptual foundations - enhances a person ’ s ability to handle the more ambiguous and qualitative relationships that dominate our day - to - day financial decisionmaking. for example, through an understanding of compounding interest, one can appreciate the cumulative benefit of routine saving. similarly, learning how to conduct research in a library or on the internet helps one find information to enhance decision - making. focusing on improving fundamental mathematical and problem - solving skills can develop knowledgeable consumers who can take