under the home ownership and equity protection act to better protect consumers with higher - priced mortgages. these rules strengthen underwriting, restrict prepayment penalties, and require escrow accounts for property taxes and insurance. the rules also address deceptive mortgage advertisements and unfair practices related to real estate appraisals and mortgage servicing. more recently, the board adopted new credit card rules to increase transparency and protect consumers from a variety of unfair and deceptive acts and practices, rules that were largely incorporated into subsequent legislation. we are currently working on rulemakings in the areas of overdraft protection, reverse mortgages, and gift cards. making supervision more effective let me turn from regulation ( the development of rules and standards that govern banks'practices ) to supervision ( ongoing oversight and enforcement to ensure that the rules are being followed ). as i noted earlier, the events of the past two years revealed serious failures in risk management at regulated financial firms that, in turn, underscored the need for supervisors to identify weaknesses in a more timely way and to more effectively ensure financial institutions remedy the problems. the nature and causes of these failures have been outlined in reports issued by a variety of domestic and international groups in which we participate. 8 as a complement to those efforts, we at the federal reserve set up a number of working groups, drawing on expertise from throughout the federal reserve system, to evaluate all aspects of our oversight of banking organizations and to develop strategies to improve the quality of our supervision. two important themes have emerged from these efforts. first, they have reaffirmed the importance of effective consolidated supervision, particularly at large, complex organizations, so that supervisors can properly understand risks and exposures that cross legal entities and business lines. second, we must combine a systemwide, or macroprudential, perspective with firm - specific risk analysis to better anticipate problems that may arise from the interactions of firms and markets. to support these approaches, we are strengthening our supervisory processes to include analyses that draw on multiple disciplines, updated surveillance tools, and more timely information so that supervisors can identify emerging risks sooner and respond more effectively. i will address each of these themes in turn. first, recent experience confirms the value of supervision of financial holding companies – especially the largest, most complex, and systemically critical institutions – on a consolidated basis, supplementing the supervision that takes place at the level of the holding company's subsidiaries. large financial institutions manage their businesses in an integrated manner with little regard for

appreciably and be ready to adapt policy flexibly. that flexibility could entail doing more to ease credit if the economy proves resistant to the monetary and fiscal stimulus now in train, or it could involve reversing actions to forestall potential inflationary effects of past actions, as i will discuss in a moment. in gauging the effects of market interventions in the current crisis, one approach is to look to the size of increases in the quantity of reserves and money to judge whether sufficient liquidity is being provided to forestall deflation and support a turnaround in growth – an approach often known as quantitative easing. the linkages between reserves and money and between either reserves or money and nominal spending are highly variable and not especially reliable under normal circumstances. and the relationships among these variables become even more tenuous when so many short - term interest rates are pinned near zero and monetary and some nonmonetary assets are near - perfect substitutes. in our approach to policy, the amount of reserves has been a result of our market interventions rather than a goal in itself. and, depending on the circumstances, declines in reserves may indicate that markets are improving, not that policy is effectively tightening or failing to lean against weaker demand. still, we on the federal open market committee ( fomc ) recognize that high levels of federal reserve assets and resulting reserves are likely to be essential to fostering recovery, and we have discussed whether some explicit objectives for growth in the size of our balance sheet or for the quantity of the monetary base or reserves would provide some assurance that policy is pointed in the right direction. loans or credit protection offered in association with government help to stabilize individual systemically important institutions probably have higher credit risk than the more general liquidity facilities described in this talk. but even in those cases, the federal reserve has taken steps to protect itself from credit losses. will these policies lead to a future surge in inflation? no, and the key to preventing inflation will be reversing the programs, reducing reserves, and raising interest rates in a timely fashion. our balance sheet has grown rapidly, the amount of reserves has skyrocketed, and announced plans imply further huge increases in federal reserve assets and bank reserves. nonetheless, the size of our balance sheet will not preclude our raising interest rates when that becomes appropriate for macroeconomic stability. many of the liquidity programs are authorized only while circumstances in the economy and financial markets are " unusual and exigent, " and such