as previously mentioned, would mitigate fire sales and their effect on the solvency and functioning of these institutions. leverage at intermediaries is much - 9reduced relative to pre - crisis norms, and gross leverage at hedge funds, based on the partial information available, has not changed much in recent years. research from economists at the federal reserve bank of new york shows that the decline in leverage, among other factors, has substantially reduced potential fire sale externalities in the banking and broker - dealer sectors. 14 thus, the regulatory changes appear to be having a positive effect on financial system stability, and these benefits may outweigh the potential costs of a possible reduction in liquidity. regulatory changes are in train for the asset management industry, whose vulnerabilities have been under examination by the financial stability oversight council and the financial stability board. 15 the securities and exchange commission ( sec ) has recently approved rules to modernize and enhance the reporting and disclosure of information by registered investment companies and to enhance liquidity risk management by open - end funds, including mutual funds and certain exchange - traded funds. 16 the sec has also proposed rules that would put new limits on registered funds ’ gross notional derivative exposures, enhance the requirements for asset segregation in derivatives transactions, and include new risk - management requirements for the use of derivatives. 17 conclusion overall, liquidity is adequate by most measures, in most markets, and most of the time. 18 bid - ask spreads and price - impact measures point toward liquidity that is good by see duarte and eisenbach ( 2013 ). see financial stability oversight council ( 2016 ) and financial stability board ( 2016 ). the sec approved the proposed rule on october 13, 2016. see u. s. securities and exchange commission ( 2015a ). see u. s. securities and exchange commission ( 2015b ). i thank jerome powell for this statement. - 10 historical standards, and we have not observed declines in market liquidity in recent episodes of high market volatility. nevertheless, the market structure is changing, and trades in certain situations and in certain market segments might have become more costly. also, flash events may be more frequent today, and the dynamics of a system with frequent flash events are likely to become complicated. moreover, some regulatory changes are only now being phased in. in light of these changes and the evolving structure of financial markets, it will be important to monitor and continue to analyze the state of market liquidity. as

3 plots realized bid - ask spreads for investment - grade corporate bonds over time ( the black dashed line ) see powell ( 2015 ) for a discussion of recent flash events and other changes in the behavior of bond prices. see adrian and others ( 2015 ). see massad ( 2015 ). see u. s. treasury and others ( 2015 ). - 5and speculative - grade corporate bonds ( the red solid line ). prior to the financial crisis, the cost of trading corporate bonds was low - - on average, bid - ask spreads were about 1 percent of the price of the bond for investment - grade bonds and about 2 percent for speculative - grade bonds. this measure of trading costs skyrocketed during the financial crisis but has returned to the range seen in the few years prior to the crisis. alternative measures of trading costs, such as price impact measures, which attempt to capture the effect of transactions on market prices, follow a similar pattern. transaction costs seem to suggest liquidity has improved. one caveat, however, is that measures of aggregate transaction costs in the corporate bond market may underestimate embedded liquidity costs. in preliminary work, choi and huh suggest that transactions in which dealers act simply as brokers, rather than as intermediaries that hold assets on their balance sheets, could reflect price concessions that dealers make to entice counterparties into the other side of a trade so that the dealers will not need to hold the traded assets. 10 price concessions, in turn, lower traditional measures of trading costs, making trading seem inexpensive, when in reality these concessions are fees the dealers pay to some investors for providing liquidity. moreover, as dealer inventories have declined over the past few years, this downward distortion to aggregate trading cost measures may have increased. to address this problem, choi and huh try to isolate transactions in which corporate bond investors are looking for liquidity ( in other words, are looking to trade ) and then construct measures of transaction costs for only such trades. the paper ’ s results are preliminary but appear to suggest transaction costs have increased somewhat in recent years. see choi and huh ( 2016 ). - 62. trading volume is high another commonly used measure of liquidity is trading volume. figure 4 shows trading volume in the corporate bond market. this measure is important because low trading volumes may indicate that high transaction costs have deterred investors from making trades, a phenomenon that transaction cost measures would clearly miss because they are calculated from actual trades. the trading volumes