now have in place a cooperative framework for liquidity provision among the major central banks. and we have considerable flexibility to adjust the dimensions of these liquidity tools. we will keep them in place as long as necessary, and continue to adapt them where we see a compelling case to do so. encouraging financial repair the federal reserve is working closely with other financial supervisors and regulators to facilitate the adjustment underway in markets. this approach has two important elements. the first is to encourage improvements in the quality of valuation methods and disclosure by the major regulated financial institutions and the necessary adjustment in valuations and reserves to reflect the deterioration in expected losses. better disclosure can reduce some uncertainty about the incidence and magnitude of potential losses across the financial system, although it is important to note that these estimates of losses are a function of the outlook for the economy and will necessarily change as expectations of the future change. the second element is to encourage new equity capital raising, so that the burden for preserving capital ratios does not fall principally on actions, such as asset sales or reduced lending, that might exacerbate the credit crunch. we have seen a very substantial flow of new capital into the financial system much more quickly than has been the case in past crises. more will come. those institutions that move more quickly will obviously be in a stronger position to deal with the challenges, and take advantage of the opportunities, ahead. fiscal stimulus monetary policy can, of course, play a powerful role in reducing the downside risks to growth, but overall policy will be more effective, particularly given the strains to the financial sector, if the full burden does not fall on the tools available to the federal reserve. fiscal policy can play an important role. the stimulus program signed into law by the president will provide a meaningful level of support to growth, somewhere in the range of three quarters to one and half of a percentage point of gdp growth over the next few quarters. targeted support for housing policy can also play an important role in helping cushion the effects of the fall in housing prices and the rise in foreclosures in the united states. the decline in house prices and the surge in foreclosures now underway will have significant spillovers to other homes in the same neighborhoods, effects that are not fully incorporated into decisions by private creditors and investors to workout mortgages on mutually beneficial terms. the degree to which mortgages are now held in securitized and complex leverage structures exacerbates the incentive and coordination problems inherent in this situation. carefully

of financial innovation and growth in derivative instruments, but the pace of change the growth in volume has brought a lot of challenges. substantial progress has been made to strengthen this infrastructure over the past two and a half years, and the resilience of the broader financial infrastructure has been a source of strength for the financial system during this crisis. however, the systems and practices that support the over - the - counter ( otc ) derivatives market significantly lags that of securities markets and other mature markets. we need to move quickly to put in place a more integrated operational infrastructure that supports all major otc derivatives products, is highly automated, has robust operational resilience and risk management, and is capable of handling very substantial growth in volumes. conclusion the u. s. economic and financial system is undergoing a very challenging period of adjustment, and we are likely to be living with a high degree of uncertainty for some period of time about the ultimate magnitude and duration of the slowdown underway. but it is important to recognize that we have already seen a lot of adjustment. prices and risk premia in many markets already reflect a much more sober and cautious view of the world than they did a year ago. and the degree of stress on markets that we have seen over the past six months is due in part to the sheer magnitude and speed of that adjustment to a more cautious view of the future. the united states, the world economy, and the financial system as a whole, are more resilient, than they were on the eve of previous downturns. the improvements in productivity growth in the united states of the past decade have been followed by significant improvements in potential growth and wealth accumulation in many other countries. the scale of investable assets around the globe is very substantial, and this will be an important source of demand for risk assets. the improvements in monetary policy credibility and in financial strength developed over the past few decades mean that policy around the world has more room to adjust to deal with the challenge in the present environment. nevertheless, the challenges that remain are substantial. the speed and agility with which public policy makers and private financial institutions respond to the continuing pressures in a rapidly evolving environment will determine how quickly and how smoothly market conditions return to normal – and how rapidly the risks to the economic outlook are mitigated.