In particular, critical financial institutions were not resilient enough to cope with large scale disruptions without assistance, and problems in one institution quickly spread to others. In response, the Federal Reserve has made significant changes in how we regulate and supervise financial institutions. We have raised capital and liquidity requirements, put banks through annual stress tests, established the Large Institution Supervision Coordination Committee (LISCC) to enable us to evaluate the largest firms collectively and relative to one another, and set up the Office of Financial Stability to enable  9  The Federal Reserve was unable to prevent the bankruptcy of Lehman Brothers. 10  For example, see “Federal Reserve: Emergency Lending,” Marc Labonte, Congressional Research Service, January 6, 2016. 11  In retrospect, I believe more government support could have been provided to homeowners. Although the Federal Reserve did not have the authority to implement a mortgage modification loan program, we did implement a mortgage-backed securities purchase program to lower mortgage interest rates. 4  BIS central bankers’ speeches  us to look at the financial system more holistically. Financial stability now receives the attention it deserves. For example, there are now regular briefings and discussions on financial stability at FOMC meetings. As discussed earlier, the Federal Reserve has the responsibility to be the lender of last resort. In normal times, this occurs through discount window lending to depository institutions. During the financial crisis, Section 13(3) of the Federal Reserve Act enabled extensions of credit in “unusual and exigent” circumstances to individuals, partnerships and corporations.

Nevertheless, we concur with the message of the Fund that risks are clearly tilted to the downside, and agree that it will be prudent for policymakers to prepare for more adverse outcomes, though we hope such outcomes will not come to pass. It is telling that emerging markets, which have already been responsible for the greatest part of the world’s economic growth, will play even more significant role in cushioning this downturn. We note that even at the slower growth rates projected, emerging markets are still expected to expand at a healthy 6.7 percent this year, and will sustain that pace in 2009. Developing Asia can be expected to see even more robust growth, in excess of 8 percent, led by China’s near double-digit rate of expansion. It is heartening to note that self-sustaining domestic demand is expected to be a greater feature of the expansion of individual Asian economies, along with greater intra-regional trade. 3. We welcome the ongoing correction of global imbalances we have experienced thus far. While recognizing that there is still a risk of disorderly unwinding of these balances, we are cautiously optimistic that responsible actions by all parties will prevent such an event. In our region, we have significant adjustments in domestic demand, underpinned by improved economic fundamentals. As a result, the surplus countries in our region continue to experience a gradual but significant decline in their current account balances, partly due to the acceleration in the rate of exchange rate appreciation in the region.