history of the 1990s, which includes episodes of global financial instability spreading from small countries through international capital markets and banks, underscores the need to maintain adequate capital in the internationally active banks. for the sake of maintaining global financial stability, i hope that everyone values that goal. basel ii would also improve risk disclosure by many banks worldwide. the proposal recommends specific disclosures to better convey an institution's capital adequacy and risk profile. the incentives in basel ii should greatly diminish the opacity that cloaks many international financial institutions and help bring about a convergence of international norms on banking disclosure. i believe that counterparties will expect, indeed force, greater disclosure. recent history certainly teaches us that understanding what drives a counterparty's financial performance and its risk appetite is necessary for accurately pricing any transaction or even for deciding whether to engage in a transaction. conclusion sound accounting, auditing, and disclosure concepts, consistently applied, have long been at the heart of efficient markets. accounting and auditing standards setters should continue their efforts to make more meaningful information available in financial statements and other reports. at the same time, the more complex nature of organizations - - and constantly changing services, customers, and business conditions - - imply that market participants need additional types of information to make appropriate investment decisions. leading firms have been developing comprehensive risk management processes for internal decisionmaking that can provide the framework for more meaningful risk disclosures. regulators and market participants should encourage financial firms to develop these new approaches and, in these early stages, give them the flexibility to choose the most appropriate format for risk disclosure. taken together, these measures should improve the transparency of complex firms ; in doing so, they will enhance the quality of information available for effective market discipline and banking supervision in ways that strengthen the financial system of the twenty - first century.

##t any principal payments from agency mbs holdings above the current runoff cap into treasury securities. and once balance sheet runoff concludes, my expectation is that proceeds from agency mbs holdings would continue to be reinvested in treasury securities in order to facilitate a transition of the federal reserve ’ s balance sheet holdings to consist of primarily treasury securities. the longer - run maturity structure of the federal reserve ’ s treasury securities holdings is also an important consideration. a benefit of a balance sheet treasury security maturity structure that mirrors the broader treasury market is that the fed ’ s holdings would be “ neutral ” in the sense that they would not disproportionately affect the pricing of any given maturity of treasury security or provide incentives for the issuance of any given type of treasury security. however, a balance sheet tilted slightly toward shorter - dated treasury securities would allow some flexibility in approach. for example, the fomc could reduce its holdings of shorter - dated treasury securities in favor of longer - dated treasury securities in a future scenario in which the fomc wanted to provide monetary policy accommodation via the balance sheet without expanding the size of its securities holdings. this approach would be similar to the fomc ’ s maturity extension program in 2011 and 2012, sometimes referred to as “ operation twist. ” 21 it will be important to consider such potential costs and benefits to the federal reserve ’ s treasury securities maturity structure and the best ways to achieve the desired maturity structure over time. see the principles for reducing the size of the federal reserve ’ s balance sheet, which is available on the board ’ s website at https : / / www. federalreserve. gov / monetarypolicy / policy - normalization. htm. for more details, see “ maturity extension program and reinvestment policy ” on the board ’ s website at https : / / www. federalreserve. gov / monetarypolicy / maturityextensionprogram. htm. - 12 it is also important for the fomc to clearly distinguish when the goal of future asset purchases is restoring market functioning or supporting financial stability. in my view, when the federal reserve purchases securities for such purposes, it should communicate that those purchases will be temporary and subsequently unwound when financial market conditions have normalized. 22 in conclusion, the fomc ’ s past experiences with using the federal reserve ’ s balance sheet as a monetary policy tool have demonstrated that the central bank balance sheet can be an effective way to ease