is, banks'activities to monitor their loans and maintain their credit operations – are also being watched carefully. examiners are looking for signs of imprudent renewals, excessive waivers of terms without compensation, or other activities which might mask recognition of poorly performing credits. we are emphasizing that banks employ appropriate internal controls that will ensure that borrowers meet their obligations under credit agreements – not only obligations for payments, but also obligations to furnish up - to - date information such as financial statements – which allow the bank to properly assess credit risk. we also continue to regularly review internal bank reports and meet with bank management to discuss underwriting and credit performance in order to identify problem areas early and while they are still manageable. supervisory strategies for going forward the u. s. banking industry is facing serious challenges ; the federal reserve, working with the other u. s. banking agencies has acted – and will continue to act – to ensure that the banking system continues to be safe and sound and able to meet the credit needs of a growing economy. our initial assessment of the weaknesses at individual firms indicates that risk management systems and senior management oversight at some institutions were not sufficiently robust. as supervisors, we must redouble our efforts to ensure risk management practices and controls keep pace with changes in financial markets and business models, providing both positive incentives and clear consequences. supervisors have emphasized for several years the concept of enterprise - wide risk management. however, problems stemming from recent events indicate that bank management in many cases was not fully aware of the latent risks contained in various structures and financial instruments, and how those risks could manifest themselves. supervisors, therefore, will be enhancing their focus on the capacity of a firm as a whole to manage risk and to integrate risk assessments into the overall decision - making by senior management. additional emphasis on enhancing stress - testing is also appropriate to focus more bank attention on risks that have a low probability of occurrence but unacceptably high potential costs. as part of an international effort, we have also been developing a set of preliminary " lessons learned " from banking organizations'experiences with recent market events, containing examples of both stronger and weaker practices, to share with the banking industry as well as our own examination staff. finally, as part of a responsible and proactive supervisory approach, and as we have done in the past, we are conducting critical assessments of our own supervisory programs, policies, and practices. this is a prudent step and is consistent with long - standing federal reserve

. canner, “ mortgage market conditions and borrower outcomes : evidence from the 2012 hmda data and matched hmda - credit record data, ” federal reserve bulletin 99 ( november 2013 ). in addition, a study of mortgage loans originated between 2003 and 2006 as part of a cra targeted, low - to moderate - income homebuyer program found that they performed nearly as well as community ’ s needs and priorities in the hands of local stakeholders : financial institutions that lend and invest, community organizations that deliver services and develop real estate, and state and local governments that direct incentives and subsidies. the enactment of other laws around the same time supported the cra ’ s success, including the home mortgage disclosure act, which requires lenders to report the location of their home mortgage lending and the race and income of borrowers. much has changed in the years since the cra was enacted, including technology - driven changes in the delivery of financial services, and it is high time to consider corresponding improvements to the regulations. both banks and community organizations have offered a variety of suggestions for improving the cra regulations and their implementation in the last several years. we are undertaking discussions with the office of the comptroller of the currency and the federal deposit insurance corporation, with which we have traditionally issued joint rulemakings on the cra. the federal reserve has long been interested in engaging in an interagency review of the cra regulations, so we are pleased to participate in this process. in addition, the treasury department recently completed an extensive outreach effort related to modernizing the cra regulations. cra is a vital tool to address the credit needs of low - and moderate - income communities, and i believe the time is ripe for a refresh to make it even more relevant to today ’ s challenges. there are five principles that can help guide our efforts. prime loans and much better than subprime mortgage loans through the financial crisis ; see lei ding, roberto g. quercia, janneke ratcliffe, and wei lei, “ risky borrowers or risky mortgages : disaggregating effects using propensity score models, ” journal of real estate research 33 no. 2 ( 2011 ) : 245 – 77. another analysis found evidence of a substantial increase in mortgage lending due to the cra - - especially among low - income borrowers - with no measurable rise in the likelihood of default ; see daniel ringo, “ mortgage lending, default, and the community rein