evolution of supervision and regulation of these activities, i ask myself whether the rules are clear in the current rapidly evolving environment, and whether the rules as they evolve are serving a legitimate prudential purpose. banks seek to understand and comply with rules because, above all, they value predictability and consistency. when a bank understands the legitimacy of a rule and establishes internal incentives to comply with it, the bank itself becomes the strongest supervisory tool that there is. but sometimes, rules are difficult to apply. this can be due to quickly evolving technologies, particularly when it comes to digital assets, but it can also be due to a lack of experience with new rules, or when the rules are not that clear in a particular context. banks should be able to know what the supervisory expectations are with respect to these new technologies in order to responsibly take advantage of them. the adoption and use of new technologies may present novel supervisory concerns, but the best way to address these concerns and encourage innovation is dialogue between bankers and supervisors before and during the development and implementation of those technologies. 6 / 8 bis - central bankers'speeches i believe the goal with digital assets should be to match oversight to risk, and to provide clarity in supervisory expectations for banks seeking to engage in the crypto - asset ecosystem. as fluctuations in crypto - asset prices have shown, there clearly are material risks associated with these assets. however, it is also an area where there has been and continues to be intense consumer demand, and we should consider whether there is a stabilizing role for banks to play in intermediation, or ensure that the competitive landscape does not create a financial stability risk by pushing activities outside the banking system, as we have seen with the mortgage industry. to be effective in this space, any clarity regulators provide will need to recognize that this is not a risk - free activity, but i believe we should allow banks to participate as long as the risks can be identified and managed appropriately and responsibly. another way to promote consistency is to continue improving the disclosures around supervisory standards. while doing so improves transparency, it also improves fairness, another of my core principles. like the due process protections enshrined in the u. s. constitution and embedded in regulatory law, fairness is fundamental to the legitimacy and effectiveness of financial oversight, including supervision. in the context of bank regulation and supervision, fairness means being transparent about expectations, which should be clearly laid out in advance ( and i want to emphasize

some of the differences we see in bank behavior likely relate to banks ’ individual liquidity needs and preferences. indeed, banks manage their balance sheets in part by taking into account their internal liquidity targets, which are determined by the interaction between the specific needs of their various business lines and bank management ’ s preferences. in any case, this picture illustrates the complexities that are inherent in understanding banks ’ underlying demand for reserve balances, a topic for which more research would be quite valuable to policymakers. so, what does this finding say about the longer - run level of reserve balances demanded by banks? the answer is that there is a large degree of uncertainty. in fact, the federal reserve bank of new york surveyed primary dealers and market participants last december to solicit their views about the level of reserves they expect to prevail in 2025. 12 a few features of the survey responses stand out. all respondents thought that the longer - run level of reserve balances would be substantially lower than the current level of more than $ 2 trillion. in addition, there appeared to be a widely held view that the longer - run level of reserves will be significantly above the level that prevailed before the financial crisis. but even so, the respondents did not agree about what that longer - run level will be, with about half anticipating a level ranging between $ 400 billion and $ 750 billion. it is important to point out that the fed ’ s balance sheet will remain larger than it was before the crisis even after abstracting from the issue of banks ’ longer - run demand for reserve balances. the reason is that the ultimate size of the fed ’ s balance sheet also depends on developments across a broader set of fed liabilities. one such liability is the outstanding amount of federal reserve notes in circulation — that is, paper money — which has doubled over the past decade to a volume of more than $ 1. 6 trillion, growing at a rate that generally reflects the pace of expansion of economic activity in nominal terms. other nonreserve liabilities have also grown since the crisis, including the treasury department ’ s account at the fed, known as the treasury ’ s general account. recent growth in such items means that the longer - run size of the fed ’ s balance sheet will be noticeably larger than before the crisis regardless of the volume of reserve balances that might ultimately prevail. 4 / 10 bis central bankers'speeches putting the various pieces together, figure 3 illustrates how the overall size