emphasize that the rapidly changing technology that is rendering much government bank regulation irrelevant also bids fair to undercut regulatory efforts in a much wider segment of our economy. the reason is that such regulation is inherently conservative. it endeavors to maintain the status quo and the special interests who benefit therefrom. new ideas, new products, new ways of doing things, all, of necessity, raise the riskiness of any organization, riskiness for which regulators have a profound aversion. yet since the value of all wealth reflects its future productive capabilities, all wealth creation rests on uncertain forecasts, which means every investment is risky. or put another way, you cannot have wealth creation without risktaking. with technological change clearly accelerating, existing regulatory structures are being bypassed, freeing market forces to enhance wealth creation and economic growth. in finance, regulatory restraints against interstate banking and combinations of investment and commercial banking are being swept away under the pressures of technological change. much the same is true in transportation and communications. as we move into a new century, the market - stabilizing private regulatory forces should gradually displace many cumbersome, increasingly ineffective government structures. this is a likely outcome since governments, by their nature, cannot adjust sufficiently quickly to a changing environment, which too often veers in unforeseen directions. the current adult generations are having difficulty adjusting to the acceleration of the uncertainties of today ’ s silicon driven environment. fortunately, our children appear to thrive on it. the future accordingly looks bright.

u. s. proposals for basel ii implementation, the agencies did not think it would be appropriate to replace the existing basel i capital rules for small, noncomplex banks in this country with the basel ii standardized rules. the agencies concluded, based in significant part on input from small community banking organizations, that the implementation costs of such an overhaul generally would exceed its regulatory benefit. instead, the agencies intend to propose, through a notice of proposed rulemaking, a simpler, more modest set of revisions to our existing basel i - based capital rules for smaller u. s. banks - revisions known as basel ia. basel ia as noted, we anticipate that only one to two dozen institutions would move to the u. s. version of basel ii in the near term, meaning that the vast majority of u. s. institutions would continue to operate under basel i - based rules. the u. s. basel i framework has already been amended more than twenty - five times since its introduction, in response to changes in banking products and the financial services marketplace. in october 2005, the agencies issued an anpr for basel ia, which discussed possible changes to increase the risk sensitivity of the u. s. basel i rules and to mitigate competitive distortions that might be created by introducing basel ii. we have reviewed comments on the anpr and are working on a notice of proposed rulemaking, which we hope to have out very soon. in drafting all of these regulatory capital proposals, we continue to consider the balance between risk sensitivity and regulatory burden, since more risk - sensitive capital requirements generally imply greater burden. thus, we are mindful that amendments to the basel i rules should not be too complex or too burdensome for the large number of small - and mid - sized institutions to which the revised rules might apply. indeed, a number of those commenting on the anpr advocated leaving existing rules unchanged. as noted, the agencies are taking into account potential competitive effects that basel ii might create between those institutions that would adopt basel ii and those that would not. indeed, we recognize that many of the thousands of depository institutions that would remain under the current capital rules may be concerned about the potential uncertainty surrounding basel ii. as part of our efforts to analyze and address these concerns, the federal reserve published a series of research papers focused on potential competitive effects in areas such as small business lending, mergers and acquisitions, and residential mortgage markets. the agencies have been taking into account the issues raised in those papers