Managing Systemic Risk

A critical part of risk management is understanding the linkage between incentives and risk-taking,Ben Bernanke believes.The structure of compensation is a safety and soundness issue.Our supervisors are emphasizing that maintaining risk management is equally important in good times and bad.The Federal Reserve is the consolidated supervisor of bank holding companies.We are working to bolster the ability of the financial system overall to withstand shocks,creating increasingly stringent standards and targets for market participants.We must be sure we continually increase our expertise,to match it with the situation.A macro-prudential agenda has many elements.Precisely how best to implement this agenda remains open to debate.An approach to supervision that focuses narrowly on individual institutions can miss threats to the financial system,in Chairman Bernanke's view.