problem. this figure was based on research done by fed economists and while our estimate of a ‘ $ 50 billion bug ’ still seems to be reasonable, i do expect this figure to move upward as we learn more throughout the year. i also perceive that the tools available to companies to address y2k issues have increased substantially. over the past months, most major computer hardware and software companies have released documentation of the y2k readiness of their products on their websites. similarly, most of the major computer publications now have elaborate ‘ how - to ’ guides on their web pages that will aid consumers and small businesses in their efforts to make their systems compliant. commercial software producers have also been busy, and new software products are available to aid programmers in repairing code. i hope and believe people are availing themselves of these new resources. as far as depository institutions are concerned, i am encouraged by the progress that has been made over the past year, and there is every reason to be confident that our banking system will be ready. based on ongoing reviews of all depository institutions as completed by federal banking regulatory agencies, the vast majority is making satisfactory progress in their y2k planning and readiness efforts. only a small percentage has been rated ‘ needs improvement ’ and well under 1 % have been rated ‘ unsatisfactory ’. in these cases, the agencies have initiated intensive supervisory follow - up, including restrictions on expansionary activities by deficient organizations. for the rest of this year the agencies will be continually revisiting any institutions identified as having problems, as well as all those identified as being key to systemic health. while we can be confident institutions are addressing the problem, it is important to recognize that regulators cannot be responsible for ensuring or guaranteeing the y2k readiness and viability of the banking organizations they supervise. rather, the board of directors and senior management of banks and other financial institutions must be responsible for ensuring the institutions they manage are able to provide high quality and continuous service in january 2000. they have every motivation to do so – their survival is at stake. the federal reserve system has itself made great progress on y2k issues, meeting the goals we set for ourselves. in addition to completing two rounds of reviews of the y2k readiness of all banks subject to our supervisory authority, we have renovated and tested virtually all our own applications. as mentioned, we have opened our mission - critical systems to customers for testing with us and have progressed significantly in our contingency planning

too much, they may be unable to service debt or could find themselves underwater if assets decline in value. such stresses can propagate through the financial system, causing funding shortages that curtail credit and hamper economic activity. of course, it is very difficult to tell in real time whether households and businesses are, in fact, borrowing “ too much, ” so we rely on a range of benchmarks. - 5currently, business debt is at historically high levels relative to such benchmarks as gross domestic product ( gdp ) or business assets, although those ratios are significantly lower than the record highs reached at the onset of the pandemic. however, measures of the ability of firms to service their debt remain strong overall, supported by resilient corporate profits and limited effects to date from higher interest rates. the passthrough of higher interest rates into debt - servicing costs appears to be muted by the large share of long - term, fixed - rate liabilities. however, i note that for risky borrowers or those with high - yield or unrated debt, the ability to service their debt burdens has started to show signs of weakness, as would be expected in a rising interest rate environment, and could become further strained if corporate earnings fall due to a sharper - thanexpected slowdown in economic activity. the household sector, taken as a whole, looks quite resilient. household debt, including home mortgages, auto and student loans, and credit cards, remains at modest levels relative to gdp, and most of that debt is owed by households with strong credit histories or considerable home equity. of course, we are seeing emerging signs of stress for households with lower credit scores, and individual borrowers may struggle with debt burdens in the face of economic hardships. financial - sector leverage now to financial - sector leverage. as i mentioned earlier, we pay careful attention to our financial system ’ s ability to support the activities of businesses and households. when financial institutions are overly indebted, adverse shocks can cause them to retrench more than they otherwise would, resulting in greater declines in economic activity. in extreme circumstances, such effects can lead to credit crunches and - 6widespread economic dislocations. similarly, some institutions may be forced to rapidly deleverage, stressing markets and forcing other institutions to also pull back. the united states has a large and vibrant financial system, so it is important to assess leverage across the