and households ’ net worth, which fell substantially as real estate and stock prices dipped, remains well below its previous peak compared with disposable income. so, households have been saving more. the personal saving rate, which rose to 5. 5 percent by the end of 2009 from a recent low of 1. 2 percent in the third quarter of 2005, seems headed even higher in the third quarter. households are “ deleveraging ” ; they are paying down their debts. of course, lenders have also reinforced this tendency as they have tightened underwriting standards for consumer credit, relative to their pre - recession standards. have households completed their deleveraging, so they will soon spend more? although we believe that substantial progress has been made, it is hard to tell how much further this process has to run. for example, the share of household after - tax income that families owe for servicing debts and paying for housing ( including property taxes, homeowners insurance and rents ) has declined sharply over the past two years and is now back to levels last seen in the late 1990s. households have cut the total amount of debt they owe. they are also refinancing outstanding debt to take advantage of the lowest mortgage interest rates since the mid 1950s. we expect the increased rate of mortgage refinancing now in place to continue over the near term. this represents another means by which households can free up income for other uses. now, let ’ s consider the slow housing recovery. housing market activity – both new construction and sales – remains depressed. on the construction side, total housing starts are running at just 600, 000 units per year ( seasonally - adjusted ) in recent months. this is up from 530, 000 units at the trough in the first quarter of 2009 but it is still extremely low by the standards of the last 50 years. in fact, the rate of new construction is so low that there is barely any net growth in the u. s. housing stock these days. one reason why so little housing is being built is that many existing homes stand vacant. we estimate that there are roughly 3 million vacant housing units more than usual. and more vacancies are added daily as the foreclosure process moves homes from families to mortgage lenders. this stock of vacant homes will shrink when fewer are foreclosed upon and more of these homes are sold or rented out. on the sales side, even though low mortgage interest rates and falling home prices have together boosted

is still quite long for a large share of the transactions. the share of trades done on the available automated platforms is still substantially short of what is possible. until the adoption of a new protocol last fall, firms were typically assigning trades without the knowledge or consent of the original counterparties. nostro breaks, which are errors in payments discovered by counterparties at the time of the quarterly flows, rose to a significant share of total trades. efforts to standardize documentation and provide automated confirmation services has lagged behind product development and growth in volume. although the risk controls seem to have done a pretty good job of capturing the economic terms of the trades, the assignment problems create uncertainty about the actual size of exposures to individual counterparties that could exacerbate market liquidity problems in the event of stress. what can be done to mitigate these risks? the two general areas that offer the highest potential return in reducing systemic risk are improvements ( 1 ) in the sophistication of the risk management process used to generate adequate capital and liquidity cushions against a severe economic or market disruption and ( 2 ) in the post trade processing and settlement infrastructure. the frontier of challenges in the risk management process lies principally in the discipline of stress testing and scenario analysis to capture potential losses in adverse conditions in the " tail " of the distribution. this has been and will continue to be a principal focus of our supervisory efforts. best practice in these areas is defined by several factors, including : • the capacity of the firm to capture quickly and aggregate exposures across the firm to specific types of risks, and to integrate these into the stress testing process, • the use of a range of different approaches to measuring exposures in conditions of stress, what the counterparty risk management group ii calls " a portfolio of analytics, " • the quality of the effort applied to understanding how risks interact in conditions of stress, particularly market and credit risk, • the degree of attention to how a substantial and prolonged reduction in market liquidity might amplify losses, • the balance between the identification of scenarios plausible or realistic enough to more easily capture management attention and those scenarios that may be less plausible but substantially more damaging to the firm, • the care given to the particular challenges in measuring exposure in illiquid and complex products, • the adequacy of the cushions – in terms of capital and liquidity - maintained against adverse scenarios where uncertainty is highest, and the strength of the connection between the identification of potential losses and