gold standard, and the banking panic of 1933, ” southern economic journal, vol. 66, no. 2, october 1999, pg. 271. bis central bankers ’ speeches support the overall mission of the federal reserve system. but, by virtue of its location, the new york fed has a unique responsibility on behalf of the system – namely to serve as the operational arm of the federal open market committee with respect to the implementation of monetary policy. this separation of the policy arm and the operational arm of monetary policy in two distinct institutions is a very unusual setup among central banks. 20 there are good reasons why these important functions are assigned to the new york fed. monetary policy works by affecting financial market conditions in order to promote the economic outcomes consistent with the fed ’ s dual mandate. as such, effective and efficient monetary policy execution requires a practical and thorough understanding of the broad range of the financial markets through which monetary policy operates. new york city is the nation ’ s principal financial center. by locating the duties related to the execution of monetary policy at the new york fed, the system gains a number of benefits. these include the new york fed ’ s ability to develop expertise in and understanding of the broad spectrum of financial markets and institutions, and its access to a deep pool of specialized financial talent in the place where it is most concentrated. the new york fed ’ s institutional knowledge and experience in financial markets and its related disciplines are a critical input at all times, but never more so than during periods of duress. this was evidenced during the financial crisis, when the new york fed ’ s unique insights and expertise helped the federal reserve respond quickly and effectively to unfolding events. the authors who crafted the federal reserve act such as carter glass – assisted by h. parker willis – deliberately created a central bank structure that fits the u. s. political system, with a series of important checks and balances – between washington and the rest of the country, between washington and new york, and with respect to the role of the federal government versus the private sector. these checks and balances exist to ensure that the central bank acts in the broadest interests of the nation, and is appropriately insulated from short - term political pressures and considerations. in this construction, new york does have a special role, but one that stems from where it sits, in new york city, the nation ’ s most important financial center. the federal reserve exists to serve main street, not wall street. the dual mandate objectives established

, but not all regions have benefitted equally here in the second district. some portions of upstate new york have benefitted from an influx of technology companies and other industries, while other regions remain challenged due to a lack of population growth. later today we will hear from two of our economists who will share national and regional economic trends. also in the spirit of looking forward, i can share some views on what community bankers can expect from the supervisory process. examiners are keenly focused on emerging trends around funding costs and liquidity risks. bankers consistently share with us the challenge of raising core deposits to fund loan growth. community banks compete not only with other community banks for deposits, but also with credit unions and larger institutions. and, these larger counterparts are actively courting customers through direct mailers and offering competitive rates. data in the second district show cost across most deposit categories have increased with a slight uptick in the higher cost funding sources such as borrowings. data for the largest banks exhibit a comparable trend, but they control a larger market share. i expect another area of focus during the examination process will be interest rate risk and related challenges. bankers have shared with us that customers are demanding higher rates on deposits, yet those same customers are reluctant to pay higher rates on their loans. what is a banker to do in trying to maintain a productive, long - term relationship? we are seeing signs of lower net interest margins ( nim ), where the average nim in the second district is 3. 47 percent compared to the national peer average of 3. 71 percent. examiners will be reviewing initiatives by community bankers to partner with “ fintech ” firms. we know there is competition from non - bank providers who have the capacity to provide automated loan pre - approvals in minutes and loan closings within days after approval. today, you will hear from a panel of your peers on how fintech is changing the way their firms do business, and how they mitigate the risks associated with outsourcing. in my view, new innovations from the fintech space have the potential to fundamentally transform the provision of financial services. as i ’ ve said elsewhere, this disruption brings both opportunity and risks and that need to be managed. 2 a third forward - looking topic is the coming implementation of accounting changes for reserves, known as the “ current expected credit loss ” approach or cecl. one of our colleagues from the board of governors will join us later to address a common question raised by our bankers