rt was an $18 million grant that funded our hospital association's participation in the hospital engagement network. this quality and safety improvement work, this $18 million grant, has generated $235 million in health care savings through a reduced readmissions, fewer hospital acquired conditions, and healthier babies. that's just one example of how our rural hospitals are preparing for a future where measuring quality, efficiency, and service will be essential. we are ready to demonstrate our value to partner hospitals, health plans, and to our patients. rural providers are dedicated to ensuring that the people who live in rural communities have access to the highest quality of affordable medical care. i'm optimistic that we can achieve this goal. the programs that we're discussing at this hearing today are valuable tools on that journey. thank you. >> thank you ms. peterson. mr. stover?

>> mr. chairman and members of the committee thank you for the opportunity to speak to you today. my name is george stover, and i serve as the chief executive officer of hospital district number one of rice county in lyons county. lyons has a population of 3800. our community hospital, which first opened in 1959 is a 25-bed critical access hospital that employees approximately 150 individuals. rural community hospitals have a long and distinguished commitmentment of providing care for all who seek it 24/7 365. more than 36% of all kansans live in rural areas and depend on a local hospital serving their community. rural hospitals face a unique set of challenges because of the remote geographic location small size scarce workforce, physician shortages, higher percentage of medicare and medicaid patients and a

constrained financial resources that limited access to capital. these challenges alone would make it difficult for many rural hospitals to survive. however, one disturbing challenge that is becoming ever increase leg more prevalent is the added regulatory burdens that are being placed upon health care providers. more specifically i would like to briefly touch upon the challenges related to the medicare policy on direct supervision of outpatient therapeutic services and the 96-hour physician certification requirement. in 2009, the center for medicare and medicaid services issued a new policy for direct supervision of outpatient therapeutic services. that hospitals and physicians recognized as burdensome and unnecessary policy change. in essence, the new policy requires that a supervising physician be physically present and that the department at all times when medicare beneficiaries receive outpatient therapeutic services. as a result, many hospitals have

found themselves at increased risk for unwarranted actions. while the congressional action last year to delay enactment was applaud by rural hospitals like mine, the protections afforded it under the legislation expired at the end of 2014. rural hospitals are again at risk for exposure unless congress takes action. the 96-hour physician certification requirement relates to the medicare conditions of participation on the length of stay for critical access hospitals. the current medicare condition of participation requires critical access hospitals to provide acute in-patient care for a period that does not exceed on an annual average basis 96 hours per patient. in contrast, the medicare condition of payment for critical access hospitals requires a physician to certify that a beneficiary may reasonably be expected to be discharged within 96 hours after admission to the critical access

hospital. as a rural hospital administrator, the discrepancies between the conditions of participation and the conditions of payment have caused confusion and challenges. equally troubling, the president's fiscal year 2016 budget proposal calls for critical access hospitals' reimbursement to be reduced from 101 to 100% of allowable costs. this reduction, which would be on top of the 2% reduction associated with sequestration would effectively eliminate any opportunity for a positive financial margin. further, the recent consideration by congress on the trade promotion authority bill that extends sequestration cuts on medicare providers potentially exacerbates our financial challenges. toward that end, a recent analysis within our state showed that 69% of rural kansas community hospitals had a negative medicare margin. the average rural medicare margin was a negative 9.3%.

as a result of this trend and the fact that many rural hospitals serve a higher percentage of medicare beneficiaries, many rural community hospitals in kansas must seek some form of direct tax support from their local communities. in summary it is critically important that our rural communities across the nation are able to access quality health care services. therefore, steps should be taken to minimize the regulatory burdens that are placed on rural health care providers. i strongly encourage this subcommittee to support solutions that address the aforementioned issues. thank you again for the opportunity to be appear before you. and i would be happy to stand for any questions. thank you. >> thank you, mr. stover. i think i'll go last this time. so the order would be senator murray, senator cochran senator moran. senator murray? >> thank you very much mr. chairman. thank you very much to all of our panelists. i really appreciate all of you participating today. ms. peterson, i'm really excited to hear about the delivery

system reform work under way. and i'm proud that our hospitals have been recognized as national leaders in increasing the quality and safety of care. i'm particularly excited about the recent grant from the centers for medicare and medicaid innovation you mentioned in your testimony to support the healthy washington initiative efforts to improve care statewide that will reduce costs and stabilize some of our rural hospitals. what have you found to be the most significant barriers to integrating care in the first year of this effort? >> at this point and you're right, it is very exciting what is going on in the state of washington, i would go back to that fragmented reimbursement system. not only are the incentives different based on what line of service you're providing, but as my colleague mentioned about the racs and the amount of time it takes to reimburse some of these systems, it's years out before we know what our true financial condition really is. so i would call out that

fragmented reimbursement system. but we also need current early relevant data to move forward with when we talk about value-based purchasing and population health. so i would say stability in reimbursement is one of the barriers. and the other is just a true reliable database for rural residents. >> okay. and talk to us about some of the specific reforms that we can expect to be seen implemented in the first year of this. >> well, what i would expect to see is this continued movement towards value-based purchasing and defining quality. and, again, i think so washington state has done an excellent job of doing that. and led by the washington state hospital association, all of the hospitals in washington are participating in reporting their quality data. so the rurals are right in there. i would expect that that's going to continue to happen. what i would like to see is more

focus on what is relevant in rural communities. when we report in to hospital to compare, too frequently that grid of data has gaps for our rural facilities because we're not measuring those things that are occurring and really contributing towards quality outcomes and reduced costs in rural hospital. >> such as? >> you know, our hospital acquired conditions, our ability to reduce readmissions from our emergency department and our in patients. one of the grants that you mentioned, the community paramedic program is actually hosted by my hospital and it's been a tremendous success taking our ems resources out into the community to see people after they've been discharged. make sure that they're following their discharge instructions getting their prescriptions filled, and that they have made that primary care follow-up. so those are some of the things i'd like. >> we've had chance to talk than, but it's fascinating to me that just that human touch on

somebody, making sure they take their medication or follow what was told to them when they left the hospital reduces costs in the long run. >> it does. and they're in their own home where they can think through their questions. we also get a look at the home and the environment they've been discharged into make sure it's safe and appropriate. it's a great program. >> i'm really looking forward to more on that. one last question. what more can cms do to help rural communities make greater use of telemedicine? >> well, telemedicine in the context we usually talk about is a direct link between the patient and a provider in a remote location, or a patient talking to someone at an academic medical center. and our facility we also use telemedicine to support our local providers. so they can have that consult discussion with somebody at the university of washington or someone at swedish. cms right now, and i think mr. cavanaugh answered some questions about the metropolitan

statistical area restrictions that we have. that's a very antiquated assumption that if you increase telemedicine, you're going increase costs. in fact, you're going to take that very scarce workforce that we have in rural america and you're going to be able to extend it. it will be more efficient. and you'll create access in our communities. >> okay. very good. thank you very much for being here and your testimony. i appreciate it. thanks, mr. chairman. >> thank you. senator cochran? >> mr. chairman, dr. henderson, you mentioned in your testimony that the reimbursement parity issue was an important factor in the growth of services that are rendered through television and telehealth services. the diabetes pilot project you described a real are really remarkable. and obviously i like the

potential for significant cost savings if they could be expanded into communities across the country. what do you see as the programs that could be expanded? are we talking about the diabetes pilot project? is that a possibility to serve more communities? >> yes. so we can expand the diabetes program to other geographic regions, but we can also expand it to other chronic diseases. and that program in particular is a remote patient monitoring program where we're helping day to day with patients in their home manage their disease and keep them healthy. and using the resources that are in that community more efficiently. but from telehealth perspective it really is about connecting and coordinating all the care team. it's not just a physician service. it's a nursing one. it's interpreters. it's case managers. it's patient navigators. once you have this infrastructure and connectivity, you can connect any of those resources to bring what would only be at an academic medical

center to a rural community. >> thank you for your leadership. we think we benefit from these experiences that you've described for us today. and i hope we can help achieve those goals of expansion and improved access for less costs. >> yes, thank you. circumstances mr. moran? >> mr. chairman, again, thank you very much for conducting this hearing. and i appreciate our witnesses. thank you for what you do in your communities to make certain that citizens patients are well cared for. let me start with the kansan. mr. stover welcome to our nation capitol. thank you for coming from kansas to testify. i want to go back to what i was trying to raise with the previous panel about actual cost-based reimbursement. can you give us an idea of even though presumably you receive 101% of costs, what really -- what percentage of your actual costs are covered by that reimbursement? you might start by telling us

what percentage of your patients are medicare and mededicaid. what is your pair mix. there public or taxpayer support for your hospital? how do you make this work, even though presumably the images that you're getting 101% of your costs? >> thank you, senator moran. within hospital district number 1 in rice county our medicare volume is about 63%. medicaid volume of about 10%. we are a taxing entity. we are able to appropriate tax funds from our district which is about $900,000. what's interesting with that number in our fiscal year ending in 2014, we ended up having to write off nearly $800,000 to

medicare bad debt. so that essentially washes itself out. when it comes to the cost base, you're absolutely right. our reimbursement of 101% does not equate to our total costs of providing that health care within our facility. i would not -- knowing that number off the top of my head exactly, but i would say it's probably around the 75 to 80% margin, which covers our costs. so we have to look towards our local tax base to make up that difference. or otherwise start looking at reduction of services, which we do not want to do. >> it used to be that hospitals would tell me that that mix, that 70 some percent medicare/medicaid, i suppose you do everything you can to cost shift that to those who have private insurance.

but are those opportunities as available now as -- is it better to have a medicare patient, a private pay patient, a medicaid patient as far as revenue? how do you -- how do you compensate for less than actual reimbursement of costs? where do you make up that money other than taxes? can you do it with private pay? >> we work towards our uninsured, our private pay in their struggles. but no. it doesn't -- it doesn't come towards -- >> let me ask the question this way, mr. stover. are you pleased whenever a blue cross and blue shield patient walks in your door? does that mean this is a better deal than it was medicare or medicaid? >> we look forward to the blue cross/blue shield patient coming to our facility. >> and the problem is the percentage of those who come in the door is a small percentage? >> a very small percentage, yes, sir. >> you mentioned uninsured and having to write off costs.

and i'm not trying to portray this in any partisan or the way this issue is looked around here too often. but under the affordable care act, a theory was there would be more people insured. has that proven to be true in light of what you just said about hoping that the private insurance covered patient walks in the door? >> we have seen a small increase of those individuals that were once uninitiated. we find them to be enrolled in medicaid in our state-based mco program that we have. we have seen a small increase in the marketplace of those that once did not have insurance. but otherwise found it on the marketplace. but when you look at the overall, that is a very small percentage of those individuals. they still find themselves

uninsured. >> some hospital administrators have told me that even with additional insured that the copayments and deductibles are higher and therefore the bad debt expense has increased even with those who have insurance. it used to -- i think the way i describe this is somebody who had a $100 copayment could come up with a $100. but if it's a $5,000 copayment they can't do that. and so you end up writing off more even though there might be a slight increase in insured? >> that is correct. we're finding that even though that the copays in the past have been lower we're finding that the copays now, those individuals are now on a payment plan, and it in turn sometimes we're having to write those off. yes, sir. >> let me ask a broader question. perhaps it's dr. henderson. i would like to have the summary

of the costs associated with telemedicine and how they're paid for. as i was listening to your testimony, i jotted down three things that i think the hospital would have to pay for, the equipment.

and all too many have scoped in underwater on their mortgages and burdened with debt. some individuals and families and unwisely but too often financial institutions incurs behavior that resulted in such excessive debt. in my remarks today i will discuss some important reasons why the incentives facing financial restitution as were distorted and the steps that regulators were taking to realign those incentives. before discussing the incentives that contributed to the buildup of risk and financial institutions my would like to highlight the important contributions of the financial sector makes to the economy and society.

first and foremost, financial institutions channel societies scarce savings directive investments thereby promoting business formation and job creation. access to capitol is important for all firms but it is particularly vital for startups of young firms which often lack a sufficient string of earnings to increase employment and internally finance capital spending. research shows that more highly developed financial systems disproportionately benefit entrepreneurship. the financial sector also helps households save for retirement, purchase homes and cars and whether unexpected developments. many financial many financial innovations such as the increased availability of low-cost mutual funds have improved opportunities for households to participate in asset markets and diversify there holdings.

expanded credit access has helped households maintain living standards when suffering job loss, illness or other unexpected contingencies. in technological innovations have increased louisiana convenience with which individuals make and receive payments. the contribution of the financial sector to household risk management and business investment as well as the significant contribution of financial sector development to economic growth has been documented in many studies. financial development up to a.has disproportionately benefit the poor and served to alleviate economic inequality. despite these benefits come as we have seen actions by financial institutions have the potential to inflict harm on society.

instead of promoting financial security through prudent mortgage underwriting the financial sector priority and the -- pirated the prices facilitated a bubble in the housing market and too often encouraged households to take on mortgages they neither understood nor could afford. recent research has raised important questions about the benefits and costs of the rapid growth of the financial services industry in the united states over the past 40 years. a combination of responses to distorted incentives by players throughout the financial system created an environment conducive to a crisis. excessive leveraged placed institutions a great risk of insolvency in the event that severe albeit low probability problems materialized. overreliance on fragile short-term funding by many institutions left the system vulnerable to runs command

excessive risk-taking increase the probability that severe problems would materialize. the structure of the regulatory system itself. it did not keep up with changes in the financial sector and insufficiently attuned to systemic risks. once risk. once concerns began to develop about escalating losses at large firms insufficient liquidity and capital interacted in an adverse feedback loop. funding pressures contributed to fire sales of financial assets and losses reducing capitol levels and tighten liquidity pressures. certain factors encouraged excessive including market perception is that some institutions were too big to fail.

finance us the twos and's to engage in regulatory arbitrage moving assets undercapitalized off-balance-sheet vehicles. the the complexity of the largest banking organizations also may have been. market discipline. in addition to financial mediation outside the traditional banking sector grew rapidly in the years up to 2007 leaving gaps in the regulatory umbrella. conflicts and the incentives facing managers, shareholders and creditors may have induced banks to increase leverage. the federal reserve and other banking agencies substantially increased capitol requirements. regulatory minimums took to risk-weighted assets and are significantly higher. capital requirements capitol requirements now focused on the highest quality capital such as common equity.

in addition to risk-based standards bank holding companies and depository's face the leverage ratio requirement. also, significantly higher capitol standards both risk-weighted and leverage ratios of being applied to the most systemically important banking organizations. such surcharges are appropriate because of the substantial harm that the failure of a systemic institution would inflict on the financial system and economy. higher capitol standards provide large complex institutions with an incentive to reduce their systemic for print. we were we were also employing annual stress tests to gaze large institutions abilities to whether a very severe downturn and distress of counterparties and importantly continue lending to households and businesses firms that do not meet these standards face restrictions

on dividends and share buyback. as a result of these changes to your one common at queen, the highest quality form of capitol has more than doubled since the financial crisis ._qwerty regulations will also improve incentives in the financial system. prior to the crisis institutions incentives to rely on short-term borrowing to fund investments and rescue or less liquid instruments were distorted in two important ways. first, many investors were willing to accept a very low interest rate on short-term liabilities or financial us tuitions while on securitizations without demanding adequate compensation for severe but unlikely risks such as a temporary loss of market liquidity. perhaps these firms expected government support or simply

considered illiquidity a very remote possibility. second, institutions attempts to shift their holdings lifted concerns. the market value. they aim to strengthen liquidity. for example, the liquidity coverage ratio requires internationally active organizations to hold sufficient assets to meet their projective cash outflows. the new process, the comprehensive liquidity the expectations for liquidity risk management and evaluate

institutions practices against these benchmarks. the proposal for the next funding ratio would require better liquidity management on horizons beyond that. a proposed capitol surcharge for the largest firms would discourage overreliance on short-term wholesale funding also, the ntc has adopted changes in regulations that may help avoid future runs on prime money market funds and reforms the associated intraday exposures. the congress tasks the banking regulators with challenging and changing the perception that any financial institution is too big to fail by ensuring that even very large banking organizations can be resolved without harming

financial stability. steps are under way to achieve this objective in particular banking organizations are required to prepare living wills plans for the rapid and orderly resolution in the event of insolvency. regulators are regulators are considering requiring the bank holding companies have sufficient total loss absorbing capacity including debt to enable them to be wound down without government support. in addition, the fdic is designed a strategy that could deploy to resolve a systemically important institution in an orderly manner. the crisis also revealed that risk management at large complex financial institutions was insufficient to handle the risks that some firms a taken.

compensation systems all too frequently failed to appropriately account for longer-term risks undertaken by employees. lax controls in some cases contributed to unethical and illegal behavior by banking organizations and their employees. the federal reserve the federal reserve has made improving risk management and internal controls a top priority. for example, the comprehensive capitol analysis and review includes the stress test and mentioned also involves an evaluation to ensure that firms have the sound process in place for measuring and monitoring the risks they are taking. also supervisors from the fed and other agencies have pressed firms to improve internal controls and to

make their boards of directors more directly responsible for compensation decisions and employee conduct. as i noted, the financial crisis revealed weaknesses in our nation system for supervising and regulating the financial industry. prior to the crisis regulatory agencies focused on the safety and soundness of individual firms. as required by the legislative mandate at the time rather than the stability of the financial system as a whole. our regulatory system did not provide any supervisory watchdog with the responsibility for identifying and addressing risks associated with activities and institutions that were outside the regulatory perimeter. the rapid growth of the shadow non-bank financial sector that significant gaps in regulation. in response .-dot frank

expanded the mandated authority of the federal reserve to allow it to consider risk to financial stability in supervising financial firms under his charge. within the federal reserve we have reorganized or supervision of the most systemically important institutions to emphasize what we called a horizontal perspective which examines institutions in a group and in comparative terms of focusing on there interaction with the board of financial system. we also created a new office within the fed to identify emerging risks to financial stability in the broader financial system. both the bank and non-bank financial sector's and to develop policies to mitigate systemic risk. dodd frank created the inter- agency financial stability oversight council chaired by the treasury secretary and the federal reserve is a member.

it is charged with identifying systemically important financial institutions and systemically risky activities that are not subject to consolidated supervision and designating those institutions and activities for appropriate supervision. and it is charged with encouraging greater information sharing and policy coordination across financial regulatory agencies. well, my topic is broad and my time is short, so let me end with three thoughts. first,. first, i believe that we and other supervisory agencies have made significant progress in addressing incentive problems within the financial sector especially within the banking sector. second, policymakers including those of us at the federal reserve cannot remain watchful for areas in need of further action or in

which the steps taken to date need to be adjusted. third, engagement with the broader public is crucial to ensuring that any future steps to move our financial system closer to where it should be. active debate and discussion of these issues at this conference and in other forms is important to improving our understanding of the challenges that remain. thank you. [applause] >> thank you very much. thank you very much for being here with us. i would like to say thank you. thank you very much for organizing this convincing

us that this was a worthy project and for setting the bar pretty high. janet you took us through a vivid walked down memory lane explaining again what the financial crisis had been and how it was addressed partly. i would like i would like to go just a little step further back, not to the roman days but back in the 18th century. a keen observer of the reality of society and is known to have said about bankers if you see a banker jump out the window follow him because there is certainly money to be made. the window could be the subprime or something else.

i will come back to voltaire in a 2nd. i fully agree with you that important progress on the regulatory reform agenda has improved the resilience of financial systems command i also welcome the continued vigilance of the fed and other institutions. yet, as we all know into many places financial stability is still not well entrenched. our recent global financial stability report issued under the leadership of the head of our ncn department finds that financial stability risks are rising rotating from banks to nonbanks from sovereign to non- sovereign from bank solvency to market liquidity and from advanced countries to emerging countries.

you know, back to voltaire i wonder whether he would have said, make sure you follow the banker. he might have said having read the financial times this morning, follow the financier. migration from the banking sector to the financial nonbanking sector. so there is so there is still work to be done to address distorted incentives in the financial system. indeed, action that precipitated the crisis were mostly not so much fraudulent as driven by short-term profit motivation this suggests that we need to build a financial system that is both more ethical and more oriented to the needs of the real economy. a financial system that serve society and not the other way around. today when i would like to do is focus on how to induce

a change in the culture of the financial sector, how to better align financial incentives with societal objectives and in doing so i think we need to look at both the regulatory environment and also the individual accountability. let me start with the laws of regulations. today more than six years on regulatory framework still faces several challenges that precipitated the crisis what have we done? a lot as janet has just explained but the job is not completed. a migration phenomenon will continue to be a work in progress. but think of the rules that are not tight enough and oversight not strong enough which is why we need further progress on the too big to fail institutions.

think of the culture of compensation based on short-term gains rather than sustainable profits which induces greater risk-taking and short-term is an. i remember back in 2010 when the fsb with good leadership in a task force tried to identify what the session system should be to avoid that short-term is a. boy that was a a heated debate, and i'm not sure we concluded an effective way. how can we address these problems? we have done at the imf in-depth work in the october 2014 gfs are. the global financial sector report on how compensation and government structures can help reduce risk-taking behavior and realign incentives in the financial system. let me highlight just two key takeaways. first on compensation. incentives related to

compensation practices need to change so that we are no longer so much tied to myopic actions and excessive risk-taking. our work showed our work showed that compensation packages can be structured to favor the long-term performance and soundness of the firm those who work for the. for example, remuneration should and has become subject to possible cancellation and clawback provisions in cases of either misconduct performance downturn and certainly in cases where the institution will require the direct support of taxpayers. another way is to give the shareholders and bondholders a stronger voice in compensation structures of top executives. and there have been clearly positive steps in that regard.

our analysis covering a sample of more than 800 banks from 72 different countries suggests that shareholders say on pay is becoming much more widespread. for example, in 2005 only 10 percent of the banks allowed shareholders to cast a nonbinding vote on management compensation. today 80 percent of banks have instituted this policy. we we have also seen some encouraging steps more recently by the acc. the proposed changes should make it easier for shareholders to determine whether executive compensation is aligned with the firm's financial performance or not. as a reformed lawyer i have to say that those principles have to be constantly revisited because experts like me welcome the rules

and make sure there is a nice way around. again, it is and will continue to be a work in a work in progress, and that should be the case. second, changes in government structures also matter. the key during the crisis was going internal control and risk management of institutions. think institutions. think of the recent example of the london whale, for instance. in many cases financial risks were either ignored or underestimated and in the particular case of systemic risks they were not well understood all. failure happened at both the management and the board level. one way to address this failure is to establish a clear distinction a clear distinction between the management on the one hand and the board on the other hand. we have seen the banks with more dependent board members take fewer risks and other

ways to ensure qualification and skills of board members and key technical professionals through rigorous fit and proper criteria. and so make and so make sure that is also a work in progress i sat on the board of ing back many years ago. the business of the bank was changing so quickly that constant training programs were actually necessary for us to understand what was going on to the beginning of the banking in those days. i could come to the rescue of voltaire, which is a bit unusual. training, training, and education. but regulation alone cannot solve the problem. whether something is right or wrong cannot be simply reduced to whether or not it is permissible under law. what what is needed is a culture that induces bankers to do the right thing even when nobody is watching.

ultimately we need more individual accountability good corporate governance is forged by the ethics of its individuals involving moving beyond corporate rule-based behavior to value -based behavior. we need a greater focus on promoting individual integrity. virtues are molded from abbott developing and nurturing good behavior over time. again education training. one clear solution is to set a strong tone at the top of the institution. as the chinese say the fish rots from the head. establishing a culture where ethical behavior is rewarded and another goal integrity is not tolerated the sanctioned you will forgive me but i believe very strongly that more women leaders would also help.

[applause] there have been many studies now many studies have shown that female leadership is more inclusive. only a little bit more risk-averse but there might not be something that ron and being occasionally risk-averse. i don't mean to be excluding anybody. but you might member a question that i too asked, what would have happened if it had not been lehman brothers but lehman sisters? [laughter] now, against this now, against this background i hope to see more worked on governance, change in risk culture. always been a strong supporter of regulators and supervisors independent supervisors as well and we will continue to do some. but i would like to see institutions themselves take

up this matter shareholders, bondholders as well. they should be a drive in the private sector for better alignment of risk incentive. this applies both to advanced and emerging economies. indeed, emerging economies can learn a lot from the valuable lessons, the pitfalls of there advanced counterparts. on this issue we released a study a few days ago the re-examines financial deepening from the viewpoint of emerging markets. a key finding is that the gains from growth and stability from financial deepening remain large for most emerging markets but there are limits on size and speed. when when financial sector development outpaces the strength of the super mature framework there is excessive risk-taking and instability.

the experience in many countries including the united states has exposed the dangers of financial systems that have grown too big too fast. our analysis on emerging markets shows that regulatory reforms can actually increase the benefits from financial development while reducing the risk. i am sure many of you have heard and some may have said excessive regulatory is going to refrain from good financial innovation as a finance minister i have heard that many times. based on the study, that fear, that change the regulatory framework or curtail credit, hamper financial development and stifle growth may very well be misplaced. on the whole the same set of principles that increases financial debt also contributes to greater stability. better regulation leads to greater possibilities for development. here, let me step back and

highlight the important distinction between financial depth and financial inclusion especially as we strive this year to deliver on important milestone, 2015 the year development. when nasa systems around the world exclude many individuals. many individuals, many firms from financial services resist the temptation of asking you to guess how many people are actually excluded 2 billion. 2 billion people worldwide remain 2 billion people do not have a bank account. there have been improvement

because it is 20 percent less over the last three years. still, 2 billion is a massive number. moreover, financial exclusion is far from being solely emerging markets. here in here in the united states surveys find that some 8 percent of us households are un- banked and some 20 percent are under banked. studies show that broader can help people manage risk and absorb financial shocks better. our own analysis finds financial inclusion is particularly important. powered and economically allowing them to invest in education which they do more

than their male counterparts so there is scope for improvement, market penetration, globally a staggering 42 percent of women lack access to basic financial services compared to 35 percent. this is even bigger if we consider the role of women in the provision of financial services. yet desirable adjectives as an objective, financial inclusion is not without risk particularly if it leads to excessive financial risk-taking. our forthcoming analysis shows that is reported by good regulation, good supervision, and independent supervision financial inclusion can actually go hand-in-hand with financial stability. so in conclusion the financial crisis has exposed several fault line and provided many lessons.

an overarching an overarching lesson is that building sustainable and inclusive growth hinges on collaborative efforts. it requires supervisors and regulators to work on managing risk and to work together. it requires building resilience in all countries realignment between corporate culture and societal objective. one final. i here and have heard many times over that it will be so much better bankers were boring again. you know what, i fundamentally disagree with that because it takes the view that for bankers to finance the real economy is boring. it is not my definition of boredom, and i don't think it should be ours. financing companies, providing credit, assessing risk properly, transforming maturity between savings and investment is not a boring activity and it should be regarded as a high-value activity.

and if the definition of boredom is working for the real economy in the definition of excitement is just making a lot of money i think we have to change a few things around. thank you very much. [applause] >> i wonder if you would tell us a little bit more about what the fund is doing all around the world to improve regulation and supervision. i no you have active programs and it will be good to hear what your involvement is. >> we operate at different levels. the global level and see each other regularly. hosea is the representative is one of those meetings. we participate in the financial stability board.

we sit on various committees that often meet in switzerland and we try to bring a perspective that is not so much the central bankers perspective or not so much the supervisors of the particular countries perspective but to move global perspective. we are also trying to bring to those meetings the views and voices of those that are not necessarily represented. emerging markets economies, low economies, low income economies. that is a critical role that we have to continue playing. then at the local level there is a lot of activity going on either when we do the annual sort of audit of the economy of our 188 members is very often expert in banking and monetary

policies and finance joined the teams. that is taking place annually but we do what we call the article for review we also do something that is highly valued by the membership, the financial sector assessment work done by a specialized team. they will come quite a while to actually go under the skin of the banking and financial sector and give a candid sort of third-party assessment of what -- where the risks are what the policy should be and it is a really good health check that is valued by the membership. i tried to disassociate what we do globally and will redo at the national level. >> would you like to take a turn? >> yeah.

now that the banking sector in a way the quality of the capital required. so quite a lot of true that have applied. feels a bit weird doesn't. some really helpful and needed development but to

fashion they go beyond the banking sector, particularly if some of those players will to call the taxpayers? >> that's a great question. the financial crisis just very clearly reveals that even outside the regular banking sector the shadow banking sector, non- finance, nine party financial sector we have risks that were very similar to the risks we have traditionally had in making. an example is that lehman and bear stearns the two firms in aig that got into the gravest trouble during the crisis or not regulated banking organizations at all and yet the risks that they were taking were very

similar to the kinds of risks that led to runs on banks in the past. the money market all of these markets developed important sources of credit for the economy but also had run like characteristics. so when troubles of their were essentially runs in these markets. in some cases, as you mentioned, the government and the money market fund case did come in and step in so it is important that we keep an eye on and appropriately regulate the shadow banking sector. i think we're making progress. the financial stability oversight council is charged with designating some non-bank institutions as systemic and then putting them under federal reserve supervision and so far they

had designated for nonfinancial companies and then also ate of what they call financial market utilities entities that are either do central clearing or play a key role in the payment and settlement system these have been designated and/or supervised and recognized to have systemic risk. we have adopted new regulations. we saw problems and securitization on the fact that in the run-up to the crisis so many securitize is to not really keep risk on their own balance sheet, did not have skin in the game. we have put we have put in place knew regulations that ought to make a significant difference. money market funds the sec has put in place knew rules for prime institutional funds that get rid of the fixed dollar value.

they will have net asset values that will reduce run risk. that aside to allow firms to impose fees something that could create financial stability risk that we need to watch. the so called tri-party repo market which is a major source of short-term wholesale funding, that contained great risks. we have taken steps important steps to mitigate. central counterparties a thrust of reform has been to try to move as many derivative contracts as possible into central counterparties to have them. by central counterparties something that serves to reduce risk and complexity and enhance financial stability but when these

entities themselves become systemic and clearly need supervision something that you have mentioned in imf work is that we have a major growth of open ended mutual funds where you have funds that are investing in highly illiquid assets. the industries are promised immediate liquidity. if there are runs on those firms you have a kind of liquidity to maturity transformation there that can give rise to a fairly substantial moves. you have highlighted that we are focus on as well. >> liquidity illusion. >> yes. >> let me come back to you if i could.

the regulatory reforms that are taking place i wondered if the fund is doing some work in trying to assess what the impact of these reforms might be on other countries. >> sure. yes, and we do that thanks to the global role that we play and the left -- and the national level involvement. at the global level what has been striking for me is that we have been able to bring together regulators and supervisors to did not have a chance or did not pay attention to what could have been or what were loopholes no space arbitrage and there have been quite a few of those.

we play the role of bringing together all those that are changing the rules. i remember vividly a meeting that we had with figures canada and vulture all present in the room together with other central bankers and supervisors and discussing where one set of tools was going to actually be an issue for another region where different regulations would apply. we play that particular role in terms of spillover we have observed lately is because of the different business model that was induced by the knew regulation as all we have observed a change in the banks themselves. there size has reduced, the footprint has changed and a lot of those subsidiaries or branches that were in the entire world remember those days when banks were saying we are global. lots of points on the map to say we are all there.

it would look a lot different today. cause them to sell the operation to generally regional banks to national banks out there that are prepared to grow and take over what the large players were downloading essentially in order to subsidize the requirements. so there has been that particular spillover aspect. the 3rd role is to actually help emerging market economies low income countries in developing countries actually adjust to the change of regulation and import in their own regulatory system the proper set of rules that will help them deepened their financial market and make it more inclusive as well as safer. the study the study i just referred to which shows that deepening and more inclusive financial sectors are actually not mutually

exclusive from stability and growth provided that there is the right set of rules and supervision in place. we work very hard on those principles. back to me to ask you a question. and in no way i'm going back to my.about the alignment of incentives and with the societal and good finance. you. you talk to yourself but the danger of distorted incentives in the financial sector. there are critics out there who will argue that with very low interest rates this is actually distorting incentives and leading to a buildup of risk to financial stability. what can you tell them? >> i think this is very important question and i

think what i 1st have to say is interest rates low interest rates in the united states. target has been a zero for an unthinkable six plus years, and we are now seeing interest rates at zero and other advanced countries. there is a reason for this. the reason is that we really think this policy is necessary to help our economies moved back to full employment and to achieve price stability. in terms of financial stability for meeting those objectives actually has a favorable financial stability effect. low interest rates have supported job creation and economic growth help

households certainly in the united states engaged in balance sheet repair to be able to pay down debt and they are in a much more sound position them as our banks, but it is true that in a low interest environment we need to be sensitive and watch for risk to financial stability. low interest rates can certainly incense some investors to reach revealed. it can send them to take a leveraged positions they can create financial stability risks. and i guess we're doing two things. we are monitoring very carefully to look to see if those risks are developing and to the extent we do see some risks developing of course we are trying to take action where we can can but we are speaking out more

generally about the risks that we see developing and i'll give you a couple of examples. in the market for leverage loans we have certainly seen a reach revealed and are seeing a deterioration in underwriting standards something we have been highlighting for a number of years. and in our role as supervisor of financial institutions that are underwriting these loans we are trying to ensure that underwriting standards move up in our higher to diminish risks. we have also seen a compulsion and spread around high-yield debt which certainly looks like a reach for yield. i guess i would highlight that equity market valuations generally are quite high. not so high when you compare

them to returns on equities the equities, the returns on safe assets like bonds which are also very low but there are potential dangers there. and and in interest rates obviously not only short the long-term interest rates said at low the embodying low term premiums which can move and can move very rapidly. we saw this in the case of the taper tantrum in 2013 four their was a very sharp upward move and rates. you do have divergent monetary policy potentially around the world. we need to be attentive to the possibility that it is time to begin raising rates. premiums can premiums can move up and we could see a sharp jump and long-term rates. we are trying to come as i have repeatedly said to my

communicate as clearly about monetary policy so that we don't take markets by surprise. in addition, i would say low interest rates can create interest rate risk of financial institutions. many banks are finding their net interest margins are depressed, they have an incentive to take an addition on duration a credit risk and if interest rates move up that can create risks in our supervision and stress tests we are looking for that and analyzing their ability. insurance companies, pension funds are subject to the same kind of pressures in the low interest rate environment. they find it hard to make their targets. and so regulatory agencies am wondering insurance companies and pension funds. the overall the risk to

financial stability is moderated not elevated. i say that because we are not seeing any broad-based pickup and leverage. we're not seeing rapid credit growth. we are not seeing an increase in maturity transformation command i would call those things kind of the hallmark of financial bubble or the precursors of the financial crisis. >> if i may follow-up, i remember those days with your credit sister and how important it was telling us is pretty much under control

they found out that they did not have the legal grounds with the potential to address them in due course. or are you better equipped today? >> i think we are better equipped today simply because in some of these markets we have improved regulation. those things i think function better than they did. i think we're willing. not banking with organizations. much higher capitol and liquidity standards that

applies to all of the nature of broker-dealers and investment banks. i i think there was a great deal of we missed before the crisis. >> i think we have -- i see them all saying time. thank you very much for your patience and for listening. thank you so much. >> thank you. [applause] screeria -- nigeria. -

screeria -- nigeria. -