promote its economic mandate of full employment and price stability. however, because there seems to be considerable interest in the income produced by the portfolio, let me touch on it briefly. given the uncertainty about how the balance sheet and interest rates may evolve, there is a wide range of outcomes for the income stream from the soma portfolio. 13 at this point, if interest rates and the balance sheet were to unfold in the manner that appears to be expected by market participants, the asset purchase programs should produce a substantial amount of cumulative income. the soma annual report for 2010 presents some projections for the portfolio income under an illustrative set of assumptions for the evolution of interest rates and the balance sheet. 14 under that projection, the portfolio produces about $ 500 billion of cumulative income over the period from 2009 to 2018, which is about $ 90 billion in excess of what we project would have been realized in the absence of asset purchases. of course, the realized stream of income could differ substantially from these projections, depending on how interest rates and the balance sheet evolve. in any event, it is worth repeating that the realized income is much less important than the economic outcomes that are achieved from the programs. conclusion i hope these comments have provided you with some insights into how the soma portfolio has been managed to date and some perspectives on its evolution going forward. in general, the federal reserve will continue to have a meaningful presence in the treasury market and in the agency debt and agency mbs markets for a number of years. however, with effective communications about potential balance sheet actions and careful implementation of any such actions by the desk, the markets should be able to adjust to the evolution of the soma portfolio without considerable problems. thank you. all soma income is remitted to treasury after paying for the operating expenses and capital needs of the federal reserve. of course, the federal reserve is being compensated for assuming this risk in the same manner as other market participants, because the assets were obtained at market prices that embed premiums for the various risks involved. our presence in the market likely reduced these risk premiums, but they appear to have remained positive on average for the assets purchased. see “ domestic open market operations during 2010 ”, a report by the markets group of the federal reserve bank of new york, march 2011. bis central bankers ’ speeches

with each other and with other nonbank institutions in both the united states and abroad. these changes in market structure have many positive implications for financial efficiency and stability, but they also mean that differences in the size and nature of the incentives faced by institutions with different supervisory and regulatory regimes can have larger competitive effects. the resulting opportunities for regulatory arbitrage have the potential to reduce the impact of provisions that apply only to regulated or supervised institutions. the risk that regulating the core of the system simply pushes financial activity to the periphery can raise the risk that distress among nonbanks can cause greater damage to the financial system. this means that we have to look for ways to cooperate more closely with other supervisors across the functional lines of supervision in our system in such as way as to impact the incentives of a broader range of market participants. fourth, we need to find ways to accelerate the pace at which the regulatory framework evolves to meet new challenges. the increase in the pace of change in financial innovation and in market structure requires greater agility among supervisors and regulators. without this agility we risk lagging too far behind changes in the frontier of risk. this does not mean that each innovation needs to be met with a regulatory response. that would be an unfortunate and surely counterproductive impulse to encourage in regulation. but when a problem in the existing framework has significant implications for financial stability or efficiency, we need the flexibility and expertise required to act more quickly than we have been able to in some areas in the past. fifth, we need to be creative in identifying areas where market - led initiatives, rather than new laws, regulations or formal supervisory guidance, are likely to be successful and possibly more efficient in achieving certain policy objectives. where collective action problems limit the incentive or the ability of individual institutions to make the necessary investments in infrastructure, the official sector can facilitate or motivate cooperative effort among market participants to solve the problem. at times, we may be more effective by helping to convene a group of market participants to reach consensus on best practices or a common solution than we would be defining or imposing a solution ourselves. of course, not all problems are amenable to a solution by public support of private initiative, but we should be open to these types of approaches when they are likely to be successful in achieving our objectives. and sixth, we have to be careful that the necessary and constructive attention that has been devoted over the past several years to meeting control and compliance challenges does not detract from