the regulatory framework. we should take a similar approach to shifts in supervisory focus. doing so promotes trust and accountability to the public and should be integral to the important work we do promoting the safe and sound operation of the banking system and financial stability. transparency also promotes innovation in the financial system by enabling banks to understand how to engage in new activities. this is especially important as digital assets and artificial intelligence are becoming increasingly more prevalent in the financial system. a deliberate, transparent, and fact - based approach to pursuing statutory objectives helps us " show our work, " that we are focused on pursuing our policy goals, and are avoiding straying into political concerns outside of statutory purposes or functions. promoting safety, soundness, and financial stability should not devolve into an exercise of regulatory allocation of credit - picking winners and losers - or promoting an ideological position through more open - ended processes like bank supervision and examination. transparency promotes fairness, as regulated entities and the public can better understand why and how our actions further our goals. when we identify areas that suffer from a lack of transparency, we should act promptly to address those concerns. take, for example, the federal reserve's supervisory stress testing process. on december 23, the fed announced that it would soon seek public comment on " significant changes " to the stress testing process designed to improve transparency of the tests and reduce volatility of the resulting stress capital buffers that apply to large financial institutions. 5 given my longstanding support for revisiting the stress testing framework to promote transparency and reduce volatility, i am pleased with this development. 6 transparency can lead to better public engagement and outcomes and should be a central part of the regulatory and supervisory approach, even when not legally 7 / 9 bis - central bankers'speeches mandated, such as in supervision. supervision involves examiners probing bank operations and assessing a bank's approach to risk and risk management. much of this information is confidential and commercially sensitive and, therefore, not available to the public or released without risking some degree of harm to the institution. but the confidential nature and approach to supervision tends to result in a wide range of information being categorized as confidential supervisory information ( csi ) and subject to restrictions on sharing. this information ends up being shielded from public scrutiny and becomes a barrier to banks engaging in discussion with peers and other regulators to better understand supervisory expectations. supervisory expectations should not surprise regulated firms, and yet changes in supervisory expectations often arise in the course of an ongoing examination. as a

example. it is more difficult to point to episodes when the absence of formal arrangements for coordination of supervisory actions inhibited a response to a problem. conversely, might arrangements that are too formal, too rigid, or too cumbersome themselves inhibit appropriate responses in emergency situations, each of which is likely to be unique? another question is whether supervisory authorities have the expertise and resources to provide meaningful oversight and develop accurate assessments of the risk - taking activities of large, diversified, globally active financial institutions. if the answer is no, as might well be the case, should we nevertheless convey to market participants the sense that we are in fact adequately supervising such activities? wouldn ’ t that reduce the incentives for market participants themselves to provide discipline? would a statement that all major financial firms, even the most diversified ones, are subject to coordinated supervision suggest a degree of support that effectively extends, to an unwarranted extent, the subsidy associated with national safety nets? would it generate a degree of moral hazard that could itself be the source of systemic risk? the answers to these questions are not straightforward. however, while many firms should reassess and upgrade their risk management procedures, and supervisors should improve their procedures as well, i do not believe that the need for a radical change in our framework for the supervision of internationally active financial firms has been demonstrated. the paradigm of supervision itself is, of necessity, continuously adjusted to the rapidly changing, technologically driven financial system. in recent years, firms and supervisors alike have sought to harness technological advances to enhance risk management procedures. much thought has been given to how to make public disclosure more meaningful and to reinforce market discipline. supervisors around the world, not just in the major industrial countries, have gotten to know each other better and to understand better each others ’ problems and policies. the legal and institutional infrastructure of financial markets has been significantly improved. along with good macroeconomic policy - - a topic for another day - - a continuation of this ongoing process of careful and measured progress represents the most constructive strategy for ensuring financial stability.