establish increasingly stringent targets and performance standards for otc market participants. in addition, we are working with market participants to enhance the resilience of the triparty repurchase agreement ( repo ) market. through this market, primary dealers and other major banks and broker - dealers obtain very large amounts of secured financing from money market mutual funds and other short - term, risk - averse investors. 3 we are exploring, for example, whether a central clearing system or other improvements might be beneficial for this market, given the magnitude of exposures generated and the vital importance of the market to both dealers and investors. even as we pursue these and similar initiatives, however, the board believes additional statutory authority is needed to address the potential for systemic risk in payment and settlement systems. currently, the federal reserve relies on a patchwork of authorities, largely derived from our role as a banking supervisor, as well as on moral suasion to help ensure that critical payment and settlement systems have the necessary procedures and controls in place to manage their risks. by contrast, many major central banks around the world have an explicit statutory basis for their oversight of these systems. given how important robust payment and settlement systems are to financial stability, and the functional primary dealers are broker - dealers that trade in u. s. government securities with the federal reserve bank of new york. the new york reserve bank's open market desk engages in trades on behalf of the federal reserve system to implement monetary policy. similarities between many payment and settlement systems, a good case can be made for granting the federal reserve explicit oversight authority for systemically important payment and settlement systems. the federal reserve has significant expertise regarding the risks and appropriate riskmanagement practices at payment and settlement systems, substantial direct experience with the measures necessary for the safe and sound operation of such systems, and established working relationships with other central banks and regulators that we have used to promote the development of strong and internationally - accepted risk management standards for the full range of these systems. providing such authority would help ensure that these critical systems are held to consistent and high prudential standards aimed at mitigating systemic risk. consumer protection another lesson of this crisis is that pervasive consumer protection problems can signal, and even lead to, trouble for the safety and soundness of financial institutions and for the stability of the financial system as a whole. consumer protection in the area of financial services is not, and should not be, limited to practices with potentially systemic consequences. however, as

containing systemic risk. this strategy must be multifaceted and involve oversight of the financial system as a whole, and not just its individual components, in order to improve the resiliency of the system to potential systemic shocks. in pursuing this strategy, we must ensure that the reforms we enact now are aimed not just at the causes of our current crisis, but at other sources of risk that may arise in the future. systemic risk refers to the potential for an event or shock triggering a loss of economic value or confidence in a substantial portion of the financial system, with resulting major adverse effects on the real economy. a core characteristic of systemic risk is the potential for contagion effects. traditionally, the concern was that a run on a large bank, for example, would lead not only to the failure of that bank, but also to the failure of other financial firms because of the combined effect of the failed bank's unpaid obligations to other firms and market uncertainty as to whether those or other firms had similar vulnerabilities. in fact, most recent episodes of systemic risk have begun in markets, rather than through a classic run on a bank. a sharp downward movement in asset prices has been magnified by certain market practices or vulnerabilities. soon market participants become uncertain about the values of those assets, an uncertainty that spreads to other assets as liquidity freezes up. in the worst case, liquidity problems become solvency problems. the result has been spillover effects both within the financial sector and from the financial sector to the real economy. in my remarks, i will discuss several components of a broad policy agenda to address systemic risk : consolidated supervision, the development of a resolution regime for systemically important nonbank financial institutions ; more uniform and robust authority for the prudential supervision of systemically important payment and settlement systems ; consumer protection ; and the potential benefits of charging a governmental entity with more express responsibility for monitoring and addressing systemic risks in the financial system. in elaborating this agenda, i will both discuss the actions the federal reserve is taking under existing authorities and identify areas in which we believe legislation is needed. effective consolidated supervision of systemically important firms for the reasons i have just stated, supervision of individual financial firms is not a sufficient condition for fostering financial stability. but it is surely a necessary condition. thus a first component of an agenda for systemic risk regulation is that each systemically important financial firm be subject to effective consolidated supervision. this means ensuring both