sarah dahlgren : five years since the crisis – where are we now? remarks by ms sarah dahlgren, executive vice president of the financial institution supervision group of the federal reserve bank of new york, at the institute of international bankers ’ seminar on “ risk management and regulatory / examinations compliance issues ”, new york city, 8 october 2013. * * * thank you sally. it ’ s great to be here again this year to open up the iib ’ s annual seminar on risk management and regulatory / examinations compliance issues. i appreciate the opportunity to address this group and to continue the dialogue that we ’ ve been having over the past several years. given that we are celebrating the five - year mark of what was probably the worst part of the financial crisis, i thought i ’ d take this opportunity to take a step back and reflect a bit on how far we ’ ve come since the crisis in addressing some of the most pressing issues. then i ’ d like to share with you some of my thoughts on areas that still need to be addressed and where i think more concerted effort is needed. as always, my remarks reflect my own views and not necessarily those of the federal reserve bank of new york or the federal reserve system. it ’ s hard to believe that it has already been five years – and i ’ m not sure whether it feels longer or shorter than that! but one thing i ’ m certain of is that a lot has changed in those five years – and much of it for the positive in terms of addressing some of the key weaknesses that led to the crisis. where progress has been made i thought i ’ d start first by reflecting on several areas where we ’ ve seen progress. importantly, the balance sheet repair that was necessary is underway. • banks are building capital – both the quantity and the quality of capital have improved markedly in the past several years. for example, by some measures, the largest banks in the u. s. have more than doubled capital levels over the past four years. • banks are also building liquidity, and liquidity levels far exceed those that most firms had going into the crisis in 2008. • while progress on both fronts is somewhat uneven across jurisdictions, there are efforts underway, including through such mechanisms as the basel rulemaking process and eu initiatives, to continue to make bank balance sheets more resilient to stress in the future. in the area of recovery and resolution, with the second round of plans in for the largest firms ( and the

first round in or due shortly for the remaining firms ), a lot of learning has happened through this process. firms have made good progress in better understanding the complexity of their own operations, including strengthening the overall management of organizational / legal structures, identifying all legal entities ( and this was huge for some firms ), and beginning the difficult task of identifying additional impediments to resolving a large internationally active firm. i think there ’ s also good recognition that the financial system is more than just banks, with processes at both the domestic / u. s. level and globally to identify the set of systemically important financial institutions ( non - banks like insurance companies for example ) and to ensure that stronger regulation and oversight is exercised over these firms. bis central bankers ’ speeches locally, within the new york fed, i noted last year that some of the changes we had made to our supervisory processes were yielding some good results, and i ’ m pleased to share with you today that progress has continued on a number of fronts. • we have continued to increase our interactions with senior management and boards of directors of the firms we supervise, including most of the largest foreign firms. we have built important channels of communication with senior management and board members – and we appreciate the enhanced level of dialogue and candor that is resulting from these interactions. and, we know that board members also appreciate the engagement and frank dialogue. • of course, we ’ ve been working closely with home country supervisors to ensure we have good communication and are coordinated in our messaging. • through the work of our business line specialists, we are developing a better understanding of the businesses you all are engaged in, including improving the dialogue with the front office and getting to know those business leaders. this has given us a much improved window into your strategies – into how you are thinking about the changes you will make and need to make in the face of increased regulation, increased regulatory pressure, competition and future economic growth. areas where work remains of course, there are many more areas where progress is being made, but those are the ones that i would highlight for you today. and, while i tend to be a “ glass half - full ” kind of person, i am also a realist and recognize the tough road ahead to continue implementing the kinds of changes needed across the system to achieve the end state of a more resilient, better managed and less complex financial system. in this regard, i ’ d highlight four areas where additional work is needed across firms