me mention three in particular which i believe are particularly relevant – the risks of herding behaviour, the importance of liquidity management, and the importance of sound corporate governance. the first example i invite you to consider concerns the belief by many conventional banks that lending to sub - prime borrowers represented a viable new business line in which there would be an appropriate risk reward trade - off. the first movers in this market might have found a profitable niche – but once many banks tried to become players in the same market, credit standards became lax and loans were made to borrowers who had little chance of repaying them. although some banks recognized the risks they did not do enough to mitigate them at a sufficiently early stage. the reason, as the former head of a major bank remarked in explaining his bank ’ s sub - prime related write - offs, is that “ if the music is playing, you have to get up and dance. ” the sub - prime episode provides an illustration of the herding instinct which has been a recurrent feature of financial markets since their very beginning. some banks discover a profit opportunity, other banks follow, and before long the oversupply of credit has led to losses. although shari ’ a compliant financial institutions have been insulated from direct losses resulting from the recent financial crisis, this does not mean that they are not as much subject to herding as are conventional financial institutions. as i have pointed out in the past, newer entrants to the industry have merely tended to copy the strategies they see being successfully pursued by their more established rivals. as a result, the industry ’ s assets have become heavily weighted towards the property sector – real estate, commercial property and construction. events in other parts of the world have recently reminded us that this sector can and does experience significant cycles of activity. we also need to remember that a business model which looks robust in conditions of rising asset values and abundant liquidity, may not be so in a changed economic environment. the industry needs carefully to consider the risks of the widespread adoption of the same business model. is it that there are genuine profit opportunities that are not being exploited by their competitors? or is it instead the consequence of merely deciding to follow the herd? an important part of the regulator ’ s role is to lean against the tendency towards herding that seems to be a perennial feature of financial markets. this is not always a popular role but it is an essential one. for example, by imposing concentration limits, regulators

three parts. the first part states the fed funds target rate of interest ; the second briefly explains and updates our analysis of current economic conditions. the third provides our assessment of the balance of risks with respect to the prospects for price stability and economic growth. the fomc decision is communicated to the domestic trading desk at the new york fed, and the revised policy is then initiated and becomes the policy guideline for the next six or seven weeks. however, the fomc can reconvene and reconsider its monetary policy stance at any time, at the call of the chairman, as changes in the economy warrant. i said earlier that one of my first impressions of fomc meetings related to the extraordinary level of preparation by both economists and members. let me share two other impressions as well. at most fomc meetings, the vote on the final fomc target and the accompanying statement has been unanimous. this pattern raises an obvious question as to the extent to which votes contrary to the will of the chairman - or the majority - are tolerated. having spent several years on capitol hill where unanimous votes on major issues rarely occur, i am particularly conscious of the contrast. one reason many votes are unanimous is that there is no “ loyal opposition bloc ” within the committee. the fomc contains neither caucuses nor coalitions representing either political or philosophic differences. second, and in stark contrast to other environments, there is a notable absence of posturing, which i define as an isolated or “ throw away ” vote to make a statement or to call attention to an individual cause. yet there are clearly discernable differences in economic philosophy among fomc members. over the years, fomc watchers have labeled some of the committee members as either inflation - fighting hawks or growth - promoting doves based on previous voting patterns and public statements. in recent months, news articles have pointed out the different approaches to policy represented by governors ben bernanke and donald kohn, the board's two newest members. governor bernanke, a widely respected researcher and monetary policy textbook author, has advocated inflation targeting - that is, publicly identifying an acceptable range for inflation. several other monetary authorities, including the bank of england, have adopted this approach. governor kohn, a career federal reserve system economist with an equally stellar reputation in his field, disagrees, preferring that fomc members establish monetary policy not with a predetermined range of acceptable inflation rates