william c dudley : panel remarks at the bank for international settlements'annual general meeting panel remarks by mr william c dudley, president and chief executive officer of the federal reserve bank of new york, at the bank for international settlements'annual general meeting, basel, 25 june 2017. * * * john clark, gerard dages, linda goldberg, eric lesueur, jonathan mccarthy, and joseph tracy assisted in preparing these remarks. let me start by thanking jens weidmann and the bank for international settlements for the opportunity to respond and comment on professor helene rey ’ s thoughtful remarks and on the issue of international spillovers associated with u. s. monetary policy. as always, what i have to say today reflects my own views and not necessarily those of the federal open market committee ( fomc ) or the federal reserve system. 1 as is characteristic of her work, what helene has to say is well - argued and provocative. it is also very relevant to the conduct of monetary policy and the functioning of the international monetary system. i mostly agree with the major points she makes. first, i wholeheartedly agree with her on the hazards of financial booms. rapid increases in credit and capital flows, asset prices, and leverage can lead to potentially severe corrections that can impose great stress on financial systems. as we have seen repeatedly, this stress can impair the ability of the financial system to perform well in intermediating credit between savers and borrowers, and in helping households and businesses manage their financial risks. when a financial system becomes impaired, there can be dire consequences for economic activity and the ability of central banks to achieve their macroeconomic objectives. helene ’ s work highlights an important global dimension to financial cycles, showing that gross capital flows, asset prices and credit often move in a synchronized way across countries as perceptions of risk change. as we now know all too well, the global financial crisis dramatically underscored the fact that instability in the u. s. financial system and those of other advanced economies imposed extraordinarily high costs on the entire global economy. making the global financial system more resilient and less procyclical has been a key focus of policymakers since the financial crisis, and most countries have made substantial progress on this front. this is evident in stronger capital and liquidity buffers for banks, lower reliance on wholesale short - term funding, reforms of over - the - counter derivatives markets, and the development of resolution and recovery regimes for banks and key

more robust and resilient financial system and a reduced risk of financial crises in the future. that said, more work should be undertaken to fully assess this issue. there is much that is still unknown. the available market liquidity data primarily focus on the inter - dealer markets and thus do not shed light on possible liquidity changes between dealers and customers. in addition, the financial system is adjusting in complex ways in reaction to regulatory, technological and other changes. we need to better understand the degree to which any changes in the nature of liquidity reflect the evolving structure of financial markets, changes in regulatory policy or other factors. with respect to regulatory policy, an important objective should be to achieve the best balance between the benefits of increased safety and soundness versus any costs imposed by these regulatory changes on market function and liquidity. in my remarks today, i will focus on market liquidity rather than funding liquidity, although i recognize that the two are related in important ways. i will examine market liquidity in two important fixed - income markets – the u. s. treasury market and the u. s. corporate bond market. the treasury and corporate bond markets provide a useful contrast in evaluating liquidity conditions as they differ with respect to the homogeneity of their securities, how their securities are traded and how regulatory changes may have affected the incentives of dealers to make markets in these securities. bis central bankers ’ speeches the treasury market is much more homogeneous and the average size of each issue is much larger. trading volume and average trade sizes are much larger, and much of the trading activity for interdealer on - the - run securities is conducted electronically through the use of central limit order books ( clob ). in contrast, the corporate bond market is much more heterogeneous ; there are many more distinct bonds available ; and bond sizes are much smaller. as a result, corporate bond trading is fragmented across a large number of distinct outstanding bonds. consequently, trading tends to occur infrequently and largely on a bilateral basis. through the prism of these two asset classes, i hope to provide some preliminary answers to five key questions. first, what do we mean by liquidity and how can we measure it? second, what does the available evidence show in terms of how liquidity has changed in recent years in the u. s. treasury and corporate bond markets? third, what factors could influence liquidity provision? regulation might be one factor, but there also could be