Michelle W Bowman: Financial stability risks - resiliency and the role of regulators

I would like to thank the Texas Bankers Association for the invitation to share my thoughts with you at this year's Annual Meeting. My remarks today focus on financial stability and the role of banking regulators in promoting financial stability and resiliency in the financial system. I will also describe principles that are complementary to promoting safety and soundness-to help inform the regulatory and supervisory agenda.

Of course, it would be difficult to provide an exhaustive list of the financial stability risks facing the financial system in the time we are together today. So, while I will highlight a few key risks, one must approach this topic with humility, acknowledging that there are limits to a regulator's ability to anticipate every possible financial stability risk in a dynamic and increasingly interconnected world.

Financial stability is an important function of the Federal Reserve. Our financial stability function is supported through appropriate monetary policy, bank supervision and regulation, and by monitoring risks in the U.S. and abroad. A stable financial system provides a solid foundation for a healthy banking system and a growing economy that facilitates maximum employment and stable prices. The Fed's recently published Financial Stability Report discusses financial stability risks in terms of interactions between shocks and vulnerabilities. A financial stability shock is an adverse event or series of events that often occur without warning and severely affect the financial system. A financial stability vulnerability includes a specific characteristic of, or activity conducted in, the financial system that can increase the severity of a stress event when a shock occurs. Since shocks are difficult to predict, the Federal Reserve's monitoring efforts primarily focus on vulnerabilities and the buildup of risks that can accrue over time potentially affecting the resiliency of the financial system.