after the review is complete. thank you, and i look forward to our conversation. 1 the views expressed are my own and not necessarily those of other federal reserve board members or federal open market committee participants. i am grateful to brian doyle of the federal reserve board staff for his assistance in preparing this text. 2 see board of governors of the federal reserve system ( 2019 ), “ federal reserve issues fomc statement, ” press release, march 20. 3 see board of governors of the federal reserve system ( 2019 ), “ balance sheet normalization principles and plans, ” press release, march 20. 4 information about the review and the events associated with it are available on the board ’ s website at www. federalreserve. gov / monetarypolicy / review - of - monetary - policy - strategy - tools - and - communications. htm. 2 / 2 bis central bankers'speeches

randall s kroszner : improving risk management in light of recent market events speech by mr randall s kroszner, member of the board of governors of the us federal reserve system, at the global association of risk management professionals annual risk convention, new york, 25 february 2008. * * * i am delighted to have been invited by garp to share a few of my thoughts about risk management practices at financial institutions. recent events remind us that markets can be quite complex and difficult to predict and that sound risk management is fundamental to the health and resiliency of both individual financial institutions and financial markets generally. today i want to highlight two fundamental elements of sound risk management : information and incentives. these two elements lie at the very heart of good risk management. information is vital to good decisionmaking, and incentives send the right signals and create beneficial outcomes both within individual institutions and to the financial system as a whole. i should note that my thoughts on recent events are preliminary. because risk - management challenges have affected a number of global institutions, we are working very closely with our supervisory counterparts in other countries to learn from recent events and to coordinate with financial institutions in determining what additional steps may need to be taken. as part of this important international effort, we should seek to align market participants'incentives with our own supervisory objectives ; otherwise, behavior will not be altered appropriately and the proposed remedies will not prove durable. key elements of sound risk management as is well known to the impressive international group of risk professionals in this audience, models are critical to understanding the nuances of risks embedded in complex financial transactions and portfolios, but i am sure all of you would agree that sophisticated techniques cannot be relied upon without the proper risk - management foundation. integral to this foundation are timely and accurate information and the will and ability to act on it. since the fortunes of even the most technically sophisticated financial institutions ultimately depend on the decisions and judgments of individual managers and traders, senior management must ensure that the right incentives are in place so that risk taking is appropriately captured in business - line performance evaluation and employee compensation. senior management must understand the risks assumed by each individual business line and communicate the firm's strategy and risk appetite back down to those business lines. at the same time, senior management must send each business - line manager clear signals about which risk levels are tolerable and which practices are not acceptable. in this way, information and incentives are threads of sound risk management that must be woven into