the federal reserve system, august 15 ). publication is also forthcoming in the journal of money, credit and banking. this paper did not specifically address community bank lending, but the authors conducted subsequent analysis of community bank data using the methodology set forth in the paper. bis central bankers ’ speeches but just as important is what, unfortunately, is not yet getting as much attention in washington. what is not happening – what in fact may be difficult to achieve until this postcrisis work is near completion and the overarching goal of financial stability has been addressed – is a more proactive inquiry and articulation of a positive vision of what kind of financial system we want to foster or preserve. while we focus on the difficult task of implementing a wide range of rules, a number of questions about the industry remain, questions that we must shift our full focus to once the post - crisis work is near completion. for example, is diversity in both the size and type of financial institutions critical to the goals of stability and access to credit? should new technologies that permit mobile payments and mobile banking be fostered through federal policy? to what extent should we be concerned about cyber threats, and are there features of a financial system that can mitigate or thwart such threats? after a crisis caused in part by opaque financial engineering, how do we prevent such excesses without stifling innovation that might benefit customers and the public and foster economic growth? should financial inclusion and financial literacy be regulatory goals, as some have suggested, and what responsibility should banks bear in achieving such ends? what do we do to re - calibrate a multi - layered regulatory response that was partly dictated by the exigencies of a crisis rather than by calculated principles of best design? we have to address these and other questions if we hope to envision a post - crisis financial regulatory system that supports a strong, dynamic, and diverse financial system. this, to me, is the strongest motivation for moving ahead as expeditiously as possible on implementing statutory requirements and international agreements to raise capital standards so that we can begin lifting our vision beyond a crisis response. moreover, as we implement these requirements and agreements, one of the things that the agencies have been considering is how we can do so in a way that does not differentially harm those financial institutions whose actions were not, by and large, responsible for the need to develop a policy response to the crisis. timeliness let ’ s talk about the importance of timely implementation of

risk profile. consistent with other findings, we found that some banks relied too extensively on the output of internal models, not viewing model output with appropriate skepticism. models are dependent on the data used to construct them. when data histories are short or are drawn mostly from periods of benign economic conditions, model results may not be fully applicable to an institution's risk profile. we concluded that banks would generally benefit from better evaluation of inputs used in their internal capital models, stronger validation of their models, and broader use of stress testing and scenario analysis to supplement the inherent limitations of their models. we are incorporating the results of this horizontal review in our current assessments of banks'overall capital adequacy, as well as using it to evaluate banks'readiness to meet the requirement in pillar 2 of basel ii that banks develop their own internal process to assess overall capital adequacy, beyond regulatory capital measures. consolidated supervision program the supervisory activities just described are intended to address many of the risk management lapses seen over the past year, some of which pertain to shortcomings in firmwide risk identification and measurement. consistent with our regular efforts to improve supervisory practices, we realize that our program of consolidated supervision could be enhanced and made more systematic. supervising a consolidated banking organization requires review of all risks on an enterprise - wide basis, not just review of the risks contained in each subsidiary legal entity. to this end, the federal reserve is nearing completion of enhancements to its supervisory guidance to clarify our role as consolidated supervisor of bank and financial holding companies. the updated consolidated supervision guidance, which will be publicly available, is primarily intended to provide greater clarity to our own examination staff. for example, it provides for more consistent federal reserve supervisory practices and assessments across institutions with similar activities and risks, detailing expectations for understanding and assessing primary governance functions and risk controls, material business lines, nonbank operations, funding and liquidity management, consumer compliance, and other key activities and risks. in this sense the forthcoming guidance is very consistent with the federal reserve supervisory actions i have just described. the enhanced guidance will help us better identify and address firm - wide issues at supervised banking organizations, while also promoting better risk management. i want to make clear that consolidated supervision of bank and financial holding companies in the united states generally works well, with strong, cooperative relationships between the federal reserve and other relevant bank supervisors and functional regulators. indeed, much of the supervisory work i just described is being done in cooperation with primary supervisors and functional regulators