been the case under the current capital regime. pillars ii and iii have not, i think, received the attention they deserve by the industry. perhaps it is because of the challenge of developing a new regulatory regime. perhaps, also, banks in the united states believe that they are already subject to supervisory oversight ( pillar ii ) and already engage in sufficient disclosure ( pillar iii ). but both pillars are critical modifications for several important reasons. as i noted, pillar ii is designed to avoid the need to design rules for everything and to give supervisors the flexibility to adjust to fit individual cases. pillar iii, by harnessing market discipline as another form of oversight, is also critical to avoiding an increase in regulation that would otherwise come as organizations become more complex. more disclosure - - especially on risk exposures - - is going to be necessary. pillars ii and iii are also extremely important for ensuring that banks here and abroad are treated consistently. in the united states and in other countries, pillar ii supervision is essential to ensuring, on an ongoing basis, that banks are implementing pillar i in a disciplined way. the pillar iii disclosures are equally important in ensuring a level playing field among internationally active banks. those banks in this country that argue that disclosure will create an uneven playing field vis - a - vis domestic nonbanks should consider whether they might not be better served by disclosure rules for their foreign bank competitors. the combination of pillars i, ii, and iii is necessary to build a structure consistent with the increasingly important process of internal capital allocation at banks and to achieve what economists call incentivecompatible regulation. by that we mean a regime in which the regulatory rules and processes induce behavior that is consistent with the banks'own systems, objectives, and processes. such a structure forces supervisors to view the internal capital - allocation process consistently with bank managers. it may well be that the supervisors'role in the oversight of economic capital determination and the markets'review of banks'risk exposure and management may be more important than the establishment of regulatory capital minimums. ii. the process as any manager knows, the process of converting a vision to reality is difficult for reasons varying from unacceptable costs to conflicting visions. we have been working to revise the basel accord - - trying to give birth to basel ii - - for half a decade. and i think it important to underline that we have made tremendous progress. many things have been decided to enhance the risk sensitivity of the revised accord and many of the proposals that needed modification

median federal funds rate projection of fomc participants, represented through fan charts, which was recently incorporated into the sep. the federal reserve could be too predictable if this type of fundamental uncertainty about the economy does not show through to uncertainty about the monetary policy path, which could imply that the federal reserve was not being sufficiently responsive to incoming data bearing on the economic outlook. let me conclude with a few words on the sep results as portrayed in the dot plots. the sep is a highly useful vehicle for providing information to market participants and others for whom fed actions are important. but we need to remind ourselves that the sep data for an individual show that person ’ s judgment of the appropriate path of future fed funds rates and the corresponding paths of other variables for which the sep includes forecasts. thus, one may say that the sep shows the basis from which each participant in the fomc discussion is likely to start. but the task of moving from that information to an interest rate decision is not simple and requires a great deal of analysis and back - andforth among fomc participants at each meeting. - 12 references bernanke, ben s. ( 2004 ). “ the logic of monetary policy, ” speech delivered at the national economists club, washington, december 2, https : / / www. federalreserve. gov / boarddocs / speeches / 2004 / 20041202 / default. htm. - - - - - - - - ( 2013a ). “ communication and monetary policy, ” speech delivered at the national economists club annual dinner, herbert stein memorial lecture, washington, november 19, https : / / www. federalreserve. gov / newsevents / speech / bernanke20131119a. htm. - - - - - - - - ( 2013b ). “ statement of hon. ben bernanke, chairman of the board of governors of the federal reserve system, washington, dc, ” in the economic outlook, hearing before the joint economic committee, congress of the united states, may 22, senate hearing 113 - 62, 113 cong. washington : government printing office, https : / / www. gpo. gov / fdsys / pkg / chrg - 113shrg81472 / pdf / chrg113shrg81472. pdf. - - - - - - - - ( 2013c ). “ transcript of chairman bernanke ’ s press