), fannie mae and freddie mac, for example, were given license and direction to take excessive risks. they were granted conflicting missions and governed by competing masters. and their funding backstop was predicated on “ constructive ambiguity, ” which turned out to be neither constructive nor ambiguous. money market mutual funds, too, managed their liquidity risks in an environment of unclear support. ultimately, if the diagnosis of the crisis fails to account for some of the broader failings of public policy, of which the gses are just one part, the prescription is unlikely to be effective. second, the regulatory reform discussion of the past year seems overly preoccupied with questions of institutional design. there are doubtless efficiencies to be gained in sharing best practices, integrating operations, and minimizing regulatory gaps among regulators. but, it is far from obvious that real regulatory reform hinges on figuring the optimal number of regulators, or the precise composition of an oversight council. i happen to believe that the federal reserve should play a critical role in the supervision of financial firms, but that should not obfuscate the larger point. if real reform were chiefly about the number of financial regulators in washington – or even the precise relationships between financial regulation and the role of the central bank – we should find an institutional design among major financial centers around the world that lived up to its promise. we find no such example. policymakers, in my view, should be more focused on what constitutes effective prudential supervision, rather than be diverted to the less consequential discussion as to who should perform it. third, some of the reform measures advocated over the past year could risk re - creating the status quo ante. but the status quo ante will no longer do. there is no going home again. if policymakers had gone into the crisis with the resolution authority to shut down non - banks and complex bank holding companies quickly, we might well have had better options to ensure an orderly disposition of failing firms. placing this arrow in our quiver now, however, is not enough to arm us for the challenges ahead. granting new powers to resolve failing firms in the discretionary hands of regulators is unlikely, in the near - term, to drive the market discipline required to avoid the recurrence of financial crises. to be clear : new resolution authority is a welcome step forward, but its efficacy should not be overstated. and this authority could be made more credible by replicating, as much as practicable

against this backdrop, the federal reserve ’ s data show that after contracting for several quarters, lending by smaller domestic banks generally resumed expanding around the middle of last year. although measures of community banks ’ profitability have risen from their recession lows, pressures on the banks ’ profitability and credit quality remain as a result of the lingering weak macroeconomic fundamentals, especially the stubbornly high amount of unemployment. bis central bankers ’ speeches in that regard, although the pace of employment growth has picked up in recent months and the unemployment rate has fallen some, the labor market remains quite weak. at the end of 2011, more than 13 million americans were out of work. an additional 8 million workers were classified as “ part time for economic reasons ” because their hours had been cut back or they were unable to find a full - time job. in addition, about 2 - 1 / 2 million americans were classified as “ marginally attached ” to the labor force because even though they wanted to get a job, they had not searched for one in the past four weeks. and almost half of that group – nearly 1 million individuals – had given up searching for employment altogether because they did not believe any jobs were available to them. the unemployed, the underemployed, the marginally attached, and the discouraged can speak powerfully to the slow pace of the recovery. the economic data in this regard correspond to what i have seen firsthand since being at the federal reserve. i have traveled to once - robust cities in the midwest and in other parts of the country. i have walked through foreclosed homes and have seen blighted neighborhoods. i have visited unemployment insurance offices and job training centers, and i have met lots of people who have been out of work for more than a year or two – out of work for so long that some of them are embarrassed to show their resumes to potential employers. these circumstances have called for forceful policy measures. in normal times, the federal reserve adjusts the stance of monetary policy largely through changes in the federal open market committee ’ s ( fomc ) target for the federal funds rate. the federal reserve then adjusts the supply of reserves in the banking system through open market operations to keep the federal funds rate close to the fomc ’ s target rate. the current and anticipated level of the target federal funds rate then influences the level of many other interest rates in the economy. for example, a reduction in the fomc ’ s target