##shadowed sarbanesoxley. today, however, much of fdicia has been forgotten. the reason? at many financial firms, bankers struck the theme of “ never again ”. that conviction spurred them to identify lessons learned and institute stronger controls on commercial real estate lending and buyout lending and maintain them. one sign that the effort mattered appeared as the commercial real estate market heated up later in the 1990s and lending terms started to loosen. deal flow came to a near - standstill as the controls established in the early 1990s kicked in. the market only resumed when underwriting standards retraced their way back to higher ground. so, as we benchmark progress in the recovery of financial institutions from the recent financial crisis, one area stands out. the early 1990s supervisory program comprised strengthening capital and liquidity, identifying problem exposures and placing them in workout, and developing a new business plan – there is one area where more progress will need to be made. the international community of supervisors has done a great deal to address the need for more and better quality capital through new capital standards. the identification and workout of troubled assets has made significant progress, which we can observe in the recovery of markets for some troubled assets. but global financial firms are still working on the new business plan. from the financial press, it ’ s clear that many large financial companies have been rethinking their strategies, often along the lines of increasing the focus on nonfinancial businesses and households and reducing the focus on expanding capital markets businesses. but i believe we are more at the beginning than toward the end of that process of reconsideration. in my personal view, the reconsideration of business plans needs to incorporate the longterm macroeconomic and technology trends even as they incorporate the lessons learned from the financial crisis. those business plans need to look ahead five years or more to position the financial firms and, with them, the financial system for the opportunities and risks that lie ahead. we will need to meet the long - term challenges of changes in the global macroeconomy, the distribution of growth opportunities and the distribution of wealth, and the speed and power of technological change. bis central bankers ’ speeches since so much opportunity has developed elsewhere in the world, how will the public sector reform agenda impact the global banking activities of financial institutions? we do not know yet how the reform agenda will affect the international activities of g - sifis, although we can see some early indications.

, the trajectory of wages and the strength of the labor market. the u. s. expansion is now in its eighth year. by historical standards, it is long in the tooth. despite this, i am optimistic that the economic expansion will continue over the next few years. first, it is important to note that economic expansions don ’ t simply die of old age. usually, they end either because inflation climbs and the federal reserve responds by shifting to a much tighter stance for monetary policy, or because the economy gets hit with a large unanticipated shock that the fed and the fiscal authorities cannot respond to quickly enough, or with sufficient force, to prevent an economic downturn. while economic shocks are, by their very nature, difficult to forecast, the risk that the fed will snuff out the expansion anytime soon seems quite low because inflation is simply not a problem. not only are underlying inflation trends very subdued — for example, the core personal consumption expenditures deflator has risen at only a 1. 7 percent annual rate over the past year — but the economy is not growing much above its sustainable long - term pace. thus, while pressures on labor resources have been increasing, but quite slowly. finally, the recent strengthening of the dollar will put downward pressure on import prices and limit the ability of domestic producers to raise their prices. second, the household sector ’ s financial condition is in unusually good shape for this point in the economic cycle. household indebtedness is relatively low, debt service burdens relative to household income have fallen to levels not seen since at least the early 1980s. moreover, household incomes are rising at a moderate pace, supported by continued job gains and some modest strengthening of wage compensation trends. if households and lenders again become comfortable with financing consumption with debt in addition to income, this will provide additional support to household spending and to the current economic expansion. the challenges in the retail space over the near term, therefore, are not likely to be a shortfall of aggregate demand from households. instead, it seems to me the challenges lie more in how to satisfy households ’ changing demands for goods and services, and the medium through which these demands are satisfied — whether it be brick and mortar or online. also, there is the important issue of how to retain brand loyalty in a world where information is ubiquitous and always near at hand, and it is easy to shift purchases among participants in the retail marketplace. thank you for your kind attention. 5 / 5