engage in crypto - asset related activities and to engage in a robust supervisory conversation. the letter said, in effect, “ don ’ t jump in and plan to figure out risk management later. ” it stated that “ federal reserve - supervised banking organizations should have adequate systems and controls in place to conduct crypto - asset - related activities in a safe and sound manner prior to commencing such activities. ” in the ensuing months, a lot happened in the crypto world, including the turmoil discussed earlier. on january 3, after learning from these developments, the board and other bank regulatory agencies issued another statement advising banks to be focused on sr 22 - 6 / ca 22 - 6, “ engagement in crypto - asset - related activities by federal reserve - supervised banking organizations, ” https : / / www. federalreserve. gov / supervisionreg / srletters / sr2206. htm. - 9a list of several key risks. 10 the list ranges from the risk of fraud and scams of crypto participants to money laundering and terrorist financing, to stablecoin run risks. 11 later in january, the board issued a policy statement making it clear to the banks we supervise that the board would apply the same permissibility standards to activities, including crypto - asset - related activities, regardless of a bank ’ s deposit insurance status. 12 the preamble to the statement made clear that we would likely view it as unsafe and unsound for banks to directly own crypto - assets on their balance sheets. in addition, we clarified that the banks we supervise seeking to issue stablecoins or dollar tokens would have to show that they have controls in place to do so in a safe and sound manner and that they would need to obtain a non - objection notice from federal reserve supervisors before proceeding. on february 23, we provided additional clarity about supervisory expectations through another statement issued jointly with other bank regulatory agencies. 13 this statement was also informed by recent supervisory experience. the statement highlighted to our supervised institutions that they need to be aware of the liquidity risks associated with certain crypto sector - affiliated deposits. we always expect banks to board of governors of the federal reserve system, “ joint statement on crypto - asset risks to banking organizations, ” news release, january 3, 2023, https : / / www. federalreserve. gov / newsevents / pressreleases / bcreg20230103a. h

alternatively, we could draw the lm curve as a horizontal line at the prevailing interest rate target set by the fomc. the position of the is curve is determined in part by fiscal policy, including the level of discretionary spending and benefit and tax rates. the latter rates also affect the slope of the is curve, but i will abstract from that detail. in figure 1 ( 6 kb ), i depict two of the infinite number of combinations of is and lm curves that intersect at potential output - the intersection at b corresponding to a looser fiscal and tighter monetary policy than the intersection at a. the first question i want to answer is, what difference does it make where the intersection of is and lm curves occurs for a given level of output? the answer is, it makes a world of difference. a combination of tighter fiscal and looser monetary policy ( point a compared with point b in figure 1 ( 6 kb ) ) implies a lower interest rate, a higher share of investment ( and, in general, of interest - sensitive components of spending ) in gdp, a lower value of the dollar, and a higher level of net exports and hence of the current account surplus. therefore, by selecting a particular policy mix, policymakers can affect the amount of capital formation and the current account balance. the above simple version of the is - lm model does not begin to do justice to the topic. in more sophisticated models, we would see explicitly the long - run increase in output associated with a shift in the composition of output today toward more investment. in addition, more sophisticated models would also show explicitly the increase in the exchange rate and the associated decline in the current account balance in response to a policy mix that resulted in higher real interest rates. finally, more sophisticated models could also take into account a second dimension of fiscal policy changes. not only do changes in tax rates and spending affect aggregate demand, they can also affect aggregate supply, for example, when they alter after - tax wage rates and after - tax rates of return to saving and investment. the effect of any change in the policy mix will also be affected by supply - side incentives incorporated in the fiscal part of the mix. the politics of the policy mix : does monetary policy respond to fiscal policy? how does the choice about the policy mix get made? an interesting question! no, we do not have a joint committee on the policy mix that considers the benefits of alternative mixes and reaches a judgment. the policy mix is