as you all know, share prices quickly recovered, and implied volatility reverted to near - record low levels. what lessons can be drawn from such an episode? perhaps because of more complete markets, shocks to liquidity are less likely to become self - fulfilling and less likely to impose more lasting damage. that hypothesis seems particularly credible when the shock is based neither on rapidly changing economic fundamentals nor a genuine breakdown in market infrastructure. in the recent episode, opportunistic capital apparently viewed large movements in asset prices as trading opportunities. or, perhaps, striking as it was, we have not yet witnessed a scenario that subjects the latest product innovations and behavior of market participants to a sufficiently stringent stress test. some highly - leveraged private pools of capital may be unable to ride out bouts of very high turbulence if they are compelled to sell assets to meet margin calls or withdrawals, and by so doing, amplify the initial shocks. the losses would be sharper and correlations would be higher for assets in which markets quickly become shallow. in theory, to the extent that more complete markets yield deeper, more robust asset markets and better - diversified positions, the dynamics of the disturbance should be more manageable. but, the question of actual experience versus theory remains. of course, a reduction in liquidity rooted in economic fundamentals would likely be more protracted and beget far more serious consequences. in a period of sustained and diminished liquidity, it is indeed plausible that financial intermediaries could revert to their traditional roles, thereby likely worsening the efficiency and completeness of markets. in such a case, those who pine for the good old days and purported good old roles of commercial and investment banks might not enjoy the economic environment that accompanies their return. even so, over the long - term, i remain a watchful optimist : reductions in liquidity are unlikely to turn back the clock on financial innovation. the knowledge of how to bundle, distribute, and price risk cannot be erased from our collective memories. nor can this knowledge be walled off from the rest of the world by one country or financial center. the culture of capitalism remains on the march. firstmover advantages are growing, even while the half - life of financial innovation is shrinking. the growth of competing financial centers around the globe is testament to the enduring power of financial innovation and the dynamism of financial intermediaries. in my judgment, while the completeness of markets will remain an

##tory in nature and not have capital consequences. it is also our intention to work with the occ and the fdic to provide guidance to large banks on how we expect them to identify, measure, monitor, and manage the financial risks of climate change. operational resilience the last priority i will mention is operational resilience. financial institutions face significant challenges from a wide range of disruptive events. these include technologybased failures, cyber incidents, pandemics, and natural disasters. such events, combined with banks'growing reliance on third - party service providers, expose them to a range of operational risks, which are often difficult to anticipate. when they manifest, these risks can affect the safety and soundness of affected banks and pose risks to u. s. financial stability by limiting market functioning or undermining trust in the system. we at the federal reserve will continue to work in this area to help ensure that banks understand and manage these complex and evolving challenges and that consumers remain protected. additionally, we are committed to working closely with other domestic agencies and international authorities to coordinate on supervisory approaches to operational resilience. conclusion as the banking system continues to evolve, we must ensure that supervision and regulation keeps up with those changes and are appropriate for the underlying risks. over the coming months and years, it will be crucial to examine new risks to the banking system and whether and how the real economy, including consumer needs and access to financial services, may change. as vulnerabilities appear, a strong banking system will help households and businesses weather those challenges. as vice chair for supervision, i will continue to work to promote a safe and fair banking system. thank you, and i look forward to your questions. 1 https : / / www. federalreserve. gov / newsevents / pressreleases / bcreg20220909a. htm. 4 / 4 bis - central bankers'speeches