important to note that monetary policy is not on a preset course. my colleagues and i will make our decisions at each meeting based on the incoming data and the implications for the outlook. while the current stance of monetary policy appears to be sufficiently restrictive to bring inflation down to 2 percent over time, i remain willing to raise the federal funds rate at a future meeting should the incoming data indicate that progress on inflation has stalled or reversed. restoring price stability is essential for achieving maximum employment and stable prices over the longer run. the future of banking turning back to the future of banking, today we find ourselves at an interesting juncture in the evolution of the banking system. some traditional risks - like interest rate risk and liquidity risk - have become a higher priority concern for banks and regulators, while other risks - like cybersecurity and fraud - continue to evolve and pose challenges. and of course, banking regulation and proposed reforms exert pressure on important elements of the banking system, affecting both the size and activities of banks. at the same time, i see important opportunities - and a critical need - for banks to continue supporting their communities and to find new and innovative ways to deliver financial products and services. bankers and regulators alike must think about these dynamics and how they will impact the future of the banking system, including safety and soundness, u. s. financial stability, the future role of banks in the u. s. financial system, and how our actions today could have long - term consequences. 2 / 7 bis - central bankers'speeches the risk of complacency banks have an obligation to manage all material risks, and yet we see that even with traditional risks - interest rate and liquidity risk, for example - long periods of calm, such as those that followed the prolonged period of low interest rates following the 2008 financial crisis, can lull both bankers and regulators into a state of complacency. often, this complacency stems from false assumptions, assumptions that prove to be inaccurate over time. for example, leading up to the 2008 financial crisis there was an unrealistic expectation that housing values would continue to appreciate. those who relied on this expectation made choices that proved to be ill - advised in the long run resulting in severe economic consequences. likewise, the persistently low interest rates that were a legacy of the post - 2008 financial crisis period led some to chase yield in their securities investment portfolios, over - investing in fixed - rate, long - term securities

as may be the case, some forms of risk are almost exclusively systemic, in the sense that the risk will turn into loss only in a systemic crisis. but surely, even with these qualifications, the regulatory system has much to gain from increasing market discipline in financial markets. two possibilities have been most widely discussed. first, as already noted, there is wide support for a resolution mechanism for large financial firms that would create a third alternative to the current, unsatisfactory options of bailout or possibly destructive disorderly bankruptcy. both the reform bill passed by the house last year and the bill to be considered on the floor of the senate contain variations on this basic proposal. yet the debate around resolution proposals has highlighted the challenge of crafting a workable resolution regime for large, interconnected firms. the basic design problem is that such a regime must advance the goals of both financial stability and market discipline. while these goals are usually complementary, they can at times be competing – especially in periods of high financial stress, when time consistency problems can loom large. in the midst of a crisis, governments fearful of financial upheaval can be tempted to provide assistance to supposedly uninsured creditors, even at the cost of increasing moral hazard in the post - crisis period. despite the design difficulties, i think certain features are essential in any special resolution process. one is that any new regime should be used only in those rare circumstances where a firm ’ s failure would have serious adverse effects on financial stability. that is, the presumption should be that generally - applicable bankruptcy law applies to nonbank financial firms – even large, interconnected ones. another is that once the new regime is invoked, the government should have broad authority to wind down the financial firm in an orderly way. most importantly, there should be a clear expectation that the shareholders and creditors of the failing firm will bear losses to the fullest extent consistent with preserving financial stability. to personalize things for this audience, we must ensure that if you have invested money in a large financial firm that runs aground, you will suffer losses. shareholders of the firm ultimately are responsible for the organization ’ s management ( or mismanagement ) and are supposed to be in a first - loss position upon failure of the firm. shareholders, therefore, should pay the price for the firm ’ s failure and should not benefit from a government - managed resolution process. to promote market discipline on the part of the creditors of large, interconnected firms, unsecured