institutions held with federal reserve banks. thus, while reference is often made to a single exit strategy, there are in fact two separate objectives : one is to terminate the special liquidity facilities and otherwise normalize our activities as liquidity provider of last resort when the exceptional stresses have eased sufficiently. the other is to raise interest rates when warranted by economic conditions. historically, the fed has affected the level of short - term interest rates primarily by varying the supply of bank reserves. however, as i just mentioned, the fed ’ s asset purchases have had the effect of putting an unusually high level of reserves into the banking system. thus, in order to tighten monetary policy, the fed cannot simply raise its target for the federal funds rate ; it will have to take other steps to ensure that interest rates actually increase. the first objective has now been substantially achieved. diminished use of some of our special facilities followed the easing of liquidity stresses in the relevant markets, and led naturally to our closing those facilities. in other cases, we decided that liquidity conditions had improved enough that further support was not warranted and that markets should function on their own. many of our liquidity facilities expired in february, and last month we ended the taf and most of the talf. all that now remains of the special liquidity facilities is the part of the talf for loans backed by newly issued commercial mortgage - backed securities, which itself is scheduled to close on june 30. we have also restored pre - crisis practice with respect to the maximum maturity of discount window loans and have increased the rate on such loans to 50 basis points over the rate we pay on reserve balances, from the 25 basis point level that was put in place during the crisis. i would emphasize that the winding down of our emergency liquidity facilities and the normalization of the terms for discount window credit were undertaken because the recovery in financial markets suggested that they were no longer necessary. these changes were not expected to lead to tighter financial conditions for households and businesses and they did not signal any change in the outlook for the economy or for monetary policy. as i have indicated, the second objective will likely require some innovative measures, insofar as, all else equal, the unusually high level of reserve balances would undercut efforts to raise the federal funds rate through conventional means. as chairman bernanke has detailed in his speeches and congressional testimony, we have a number of tools that will allow us to accomplish this task at the appropriate time.

, “ good compliance, not mere compliance, ” speech delivered at “ reforming culture and behavior in the financial services industry, ” a conference sponsored by the federal reserve bank of new york, new york, n. y., october 20. bis central bankers ’ speeches use an apt metaphor, we looked closely at the trees and not as intently as we should have at the forest. one of the most fundamental changes in the fed ’ s oversight of large institutions since the crisis, a principle that undergirds everything i will discuss today, is elevating the importance of financial stability in that oversight. the fed oversees financial institutions through regulation and supervision. while they are often closely related, these are two distinct activities. on the one hand, regulation refers primarily to the rules that firms must follow. regulation starts with laws passed by congress which are the basis for specific and detailed rules written by the fed and other agencies. supervision, on the other hand, involves monitoring and examining the day - to - day operations of these firms, including their financial condition, how they manage risks, and their corporate governance, to make sure they are complying with laws and regulations and operating in a safe and sound manner. the federal reserve board writes the regulations firms must follow, establishes supervisory policies and, in close collaboration with the 12 regional reserve banks, is deeply engaged in the supervision of large financial institutions. much of the day - to - day work of supervision, particularly for smaller banks, occurs locally through the reserve banks. for systemically important firms, the board several years ago established the large institution supervision coordinating committee ( liscc ) in order to assure well - coordinated supervision. i consider the effective supervision of large institutions, to ensure their safety and soundness and the stability of the financial system, to be one of the federal reserve board ’ s most important responsibilities, and one of my most important responsibilities as chair. in improving the oversight of large firms, the federal reserve has made it a top priority to ensure that we appropriately tailor our regulation and supervision of banks to their size, complexity, and risks. 5 we will use statutory authorities to ensure that we avoid a one - sizefits - all approach as we promulgate rules and regulations. as we continue this work, we will communicate to the congress should we identify discrete issues that may benefit from further clarification or technical changes without undermining safety and soundness, such as those addressed by congress last year related to capital requirements for insurance companies