likewise, providers of short - term secured funding through repurchase agreements ( repos ) and other forms of secured funding, including money market mutual funds and other conservative investors, could have unexpectedly found themselves holding various forms of collateral rather than the liquid funds they were expecting. these investors would probably have been hard - pressed to dispose of this collateral and to manage their liquidity needs in a highly stressed environment. more generally, in this scenario, sharply increased uncertainty about the liquidity and financial strength of a wide range of counterparties would likely have greatly reduced the willingness of financial market participants to engage in normal transactions. the federal reserve, together with other regulators and the private sector, is engaged in a broad effort to strengthen the financial infrastructure. in doing so, we aim not only to help make the financial system better able to withstand future shocks but also – by reducing the range of circumstances in which systemic stability concerns might prompt government intervention – to mitigate moral hazard and the problem of " too big to fail. " 3 for example, since september 2005, the federal reserve bank of new york has been providing leadership for a major joint initiative by the public and private sectors to improve arrangements for clearing and settling credit default swaps ( cds ) and other otc derivatives. as a result, derivatives dealers and other market participants have taken a number of steps to enhance post - trade processing of cds, and in 2006, they expanded the effort to otc equity derivatives. however, the infrastructure for managing these derivatives still is not as efficient or reliable as that for more mature markets, as was evident last summer, when a surge in cds trading volume greatly increased backlogs of unconfirmed trades. the new york fed and other supervisors are working with market participants to fundamentally change how cds and other otc derivatives are processed by applying increasingly stringent targets and performance standards. they are also emphasizing that dealers must demonstrate their capability to adequately manage the failure of a major counterparty, including calculating exposures rapidly, having clear management procedures, and conducting internal stress exercises. finally, they are encouraging the development of wellregulated and prudently managed central counterparty clearing arrangements for cds trades. bank - affiliated primary dealers are already subject to mandatory consolidated supervision, but the focus of that supervision has been on limiting risks to the banks and other insured depository institutions within the holding company. existing provisions may need to be modified to provide regulatory authority to assess and limit risks to all functionally regulated entities, including securities subsidiaries

jerome h powell : community banks in the united states introductory remarks by mr jerome h powell, member of the board of governors of the federal reserve system, at the community banking research and policy conference, co - sponsored by the federal reserve system and conference of state bank supervisors, st. louis, missouri, 23 september 2014. * * * it is a pleasure for me to join jim bullard and john ryan in welcoming all of you to the second annual community banking research and policy conference, co - sponsored by the federal reserve system and conference of state bank supervisors. i had the privilege of addressing the inaugural community banking conference held here last year, and as chairman of the federal reserve board ’ s subcommittee on smaller regional and community banking, i am delighted to return to this venue to participate in this year ’ s event. 1 as all of you surely know, community banks play a vital role in america ’ s financial system, providing essential services to households, small businesses, and small farms in communities throughout the country. community banks differ from their larger cousins, not just in size, but in the fundamental focus of their business. community bankers ’ primary objective is to serve the members of their local communities, who are not only their customers but also their neighbors and friends. they have strong links to the people and businesses that reside in their communities, as well as direct knowledge of local economic conditions. these close ties give community bankers a clear advantage in understanding local needs and tailoring their products and services to meet those needs. i will confess that i have never worked at a community bank ; however, i have been a community bank customer, and in that role i have had personal experience interacting with bankers whose mission is to provide high quality of service to every customer who walks in the door. despite the advantages that i just mentioned, life is not always easy for community bankers. the number of community banks in the united states has declined sharply over the past three decades, due to a combination of failures and acquisitions. 2 and many remaining community banks have struggled to survive, especially during the last five or six years. although improving overall economic conditions have begun to provide some relief to these struggling banks, they continue to face significant challenges. the burden of regulatory compliance can be particularly daunting for small banks. and competition, from large banks and credit unions as well as other nonbank financial service providers, is always a concern. my colleagues on the federal reserve board and i are committed to making sure that we understand the challenges