the second half of 2013 is the significant strengthening in household balance sheets. one aspect of that improvement is that from mid - 2008 through mid - 2013, total household liabilities declined significantly after a period of quite rapid debt growth over the preceding decade. the reduction in household debt is an extremely rare event for the u. s. economy. in fact, this has been the only period of sustained declines in nominal household indebtedness over the period since the early 1950s. the household sector in the remainder of my remarks, i ’ d like to focus on the finding, made public in our most recent quarterly report on household debt and credit, that for the first time since 2008, households increased their borrowing on a year - over - year basis, at least in nominal terms. i ’ ll argue that this is an encouraging development, although we should be cautious both in predicting future borrowing and in recognizing that the aggregate increase in borrowing may mask the fact that many individual households remain constrained by prior borrowing and / or a reduction of income. these households are still engaged in attempting to reduce their debt burden by pay - downs in debt. furthermore, i ’ ll explain how the type of borrowing by households has changed over time. here too there is a reason for some caution, because borrowing for education has become more common for u. s. households. it appears that heavy student debt can restrain the consumption activity of those individuals who are burdened with it. if this is the “ new normal ” for the economy, it might result in delayed purchases of homes and autos for those graduates who finance their education by taking on large amounts of debt. this is a potential development that bears close monitoring. why do i suggest that an increase in household borrowing is an encouraging development? while in recent years we have certainly seen that household debt can carry serious negative consequences, overall an increasing level of borrowing indicates that the economy is returning to normal patterns. after all, with rising gdp and an expanding population, we should not be surprised to see debt increasing, if only modestly. of course, the kinds of debts that people are taking on and the riskiness of those loans – to both the borrower and the lender – are important issues, and i will return to them later in the talk. now households borrow for a variety of reasons, but we can generalize to say that households borrow to smooth their consumption. for households whose incomes are temporarily low, perhaps because they are just starting their careers, borrowing makes it

context of compliance risk management in the u. s., the five federal banking agencies recently encouraged financial firms to explore innovative approaches to meet their compliance obligations related to money laundering and further strengthen the industry against illicit activity. 15 similarly, in the u. k., rob gruppetta, head of the financial crime department at the financial conduct authority, has spoken about the “ balancing act ” the fca faces as a regulator trying to encourage progress and innovation while also mitigating danger and imprudent risk - taking. he points out that data from new technologies has also allowed the fca to be more consistent, effective, and risk - based in its supervisory approach toward conduct risk. 16 this leads to a question about how firms can use similar tools and techniques to mitigate misconduct risk and promote healthy cultures. as with any innovation and application of new technology, critical questions are emerging. for example, reliance on complex algorithms or machine learning tools raises issues around “ explainability ” and a clear audit trail. lawyers will inevitably opine on a variety of issues, including data protection and privacy. beyond strictly legal issues, firms will have to wrestle with questions about fundamental fairness and the consequences that techniques perceived as unduly intrusive and untrusting may have on employee morale and industry retention. as new technologies spread and their use grows in areas related to compliance and internal assessments, we will need to confront these issues. conclusions to conclude, the culture of a financial firm, and of the industry as a whole, is a complex phenomenon that is not easy to measure or manage. collectively, however, we must not ignore this issue. looking ahead, members of the financial industry with different roles and perspectives can each take practical steps to move this dialogue forward. financial firms should continue to develop and implement programs to build cultural capital, with directors, senior management, and staff each having distinct responsibilities and perspectives. supervisors around the globe should remain committed to staying up - to - date on industry advances while continuing to develop and implement innovative supervisory approaches. we should continue to collaborate with the industry, the academic community, and other parts of the official sector. we should continue to monitor progress on industry benchmarking as more jurisdictions take up these efforts. and, perhaps most importantly, we should continue to engage in discussions like this one, so we work together to identify lessons learned and best practices as we pursue our common goals of a safe, sound, and stable banking system. i think we should be optimistic that