The Fed provided liquidity facilities and took many other actions to contain and reduce pressures in financial markets, while the U.S. Treasury supported the banking system and provided cash and incentives to households, businesses, and state and local governments to support spending during 2009. The Fed’s “lender of last resort” interventions – including facilities such as the Term Securities Lending Facility (TSLF) and the Primary Dealer Credit Facility (PDCF), as well as programs such as reciprocal currency agreements – are examples of the rapid application of central banking tenets to the unique challenges we faced as this crisis evolved. Indeed, in many ways, the crisis has underscored why the Federal Reserve was created almost a century ago: to provide a backstop for a banking system prone to runs and financial panics. Where it proved necessary and feasible, the Fed also used its emergency lending authority to forestall the disorderly failure of systemically important institutions. These actions truly were extraordinary – well outside the scope of our normal operations – but our judgment was that not taking those actions would have risked a broader collapse of the financial system and a significantly deeper and more protracted recession. Faced with the choice between these otherwise unpalatable actions and a broader systemic collapse, the Fed, with the full support of the Treasury, invoked its emergency lending authority and prevented the collapse of certain institutions previously considered to have been outside the safety net. Make no mistake: these necessary moves were unprecedented and controversial.

In addition, we are working very closely with all of the banking supervisors and other key parties to facilitate an effective resolution to the current problems facing the island’s banking sector. Some consolidation is likely needed to produce stronger, healthier institutions more able to make the sound lending decisions that support economic growth. Let me also tell you a bit about how we are contributing “on the ground” here in Puerto Rico. I mentioned financial literacy a few minutes ago. The Federal Reserve System and the New York Fed have taken a great interest in economic education and financial literacy and will continue to do even more in the future. I, personally, believe that financial literacy is essential so that households can make the type of good financial decisions that help to ensure better futures. The New York Fed, along with many financial institutions and foundations in Puerto Rico, has created and supported the Economic and Financial Education Alliance of Puerto Rico. Over the past ten years, the Alliance has trained more than 400 high school teachers in economics and financial literacy. I would like to personally thank all the institutions whose devotion to this Alliance has made these education efforts possible. These teachers take what they learned back to the classroom and many of their students enter the Federal Reserve Economics Competition. The students apply analytical skills to a local problem of their choosing and work as a team to create a presentation outlining their solution and responding to questions.