Provision of Financial Services Broadly speaking, the fundamental purpose of banking is to provide financial services such as credit provision, payments, and deposit-taking to support sustained economic growth. This is true in normal times, and is even more true in the current environment. The Fed has taken a number of actions to help the U.S. banking sector perform these critical functions through changes to supervision, regulation and the provision of liquidity. Collectively, these steps are designed to limit the potential for financial channels to amplify the initial economic shock created by the COVID-19 virus. Beginning with supervision, the federal banking agencies, in consultation with state financial regulators, are encouraging financial institutions to work with borrowers in a safe and sound manner.1 The agencies view prudent loan modification programs as positive and proactive actions that can help both borrowers and lenders. This approach is consistent with the agencies' longstanding practice of encouraging financial institutions to assist borrowers in times of natural disaster and other extreme events. The Fed has also provided information to banks on how we are adjusting our supervisory approach.2 This includes, for example, monitoring and outreach to help banks of all sizes understand current challenges and risks; a temporary reduction in exam activities, particularly for the smallest and lowest risk institutions; and additional time to resolve non-critical existing supervisory findings. These actions should help financial institutions deploy their resources as efficiently as possible and continue to support their customers and local economies in a prudent and fair manner.

Its recommendations have been approved by the IMF and the G8 and include a range of measures to fill particular gaps or put right particular faults in the regulatory system by: •  strengthening prudential oversight of capital, liquidity and risk management; implementing Basle II and requiring more capital against, for example, off-balancesheet vehicles, securitisations and tail risk;  •  enhancing transparency and valuation particularly for complex structured financial products and off-balance sheet vehicles;  •  changing the role and uses of rating agencies, including by distinguishing ratings of corporates and structured products;  •  strengthening the authorities’ responsiveness to risk; and  •  increasing the robustness of arrangements for dealing with financial stress; ensuring central banks’ operational frameworks are flexible enough to deal with extraordinary situations in money markets and mechanisms for dealing with weak or failing banks are put in place. More generally we are discussing in the FSF how the authorities can go further in moderating the financial cycle. Of course monetary policy can play a role in this. One goal of monetary policy is to stabilise the economy in the face of shocks and central banks have always looked at credit and money growth as important indicators of the state of the economy. The rapid growth of credit in 2006 for example was one factor leading the MPC to start raising interest rates. However central banks have been wary of putting a lot of weight on disciplining financial markets by changing interest rates.