we strive to improve the regulatory framework going forward. i want to emphasize that these principles, as in the case of many principles, are easier to state than to achieve. let me start by acknowledging there are aspects of the exacting standards we have sought to impose on our financial system that have turned out to be expensive in relation to the return against our public policy objective. and provisions that seem optimally designed at any given time are likely to need to evolve as conditions change. that this should occur is a natural aspect of a dynamic financial environment. there are areas where we are likely to have erred in being too prescriptive and others where we left too much room for discretion and judgment. it would be good if we could find a way to build into the initial design of guidance and regulation the capacity for quicker and continuous evolution as we learn more. second, we need to continue to adapt our approach to the imperatives of a much more integrated global financial system. global integration, of course, gives us all a greater stake in the quality of supervision outside our borders. this pragmatic interest will lead us to spend progressively more resources and attention on the international dimension of our work. this recognition informed the efforts that led to the basel capital accord, the lamfalussy standards for payment and settlement systems and many other international cooperative efforts. but the imperative is much stronger today because of the much greater extent of financial integration, and it is only likely to grow. it is also important that the design of regulatory initiatives in the united states be informed by a careful assessment of their relative impact on u. s. institutions and markets. effective solutions to many of the concerns we face in our national financial systems will require multilateral approaches. rather than starting with a presumption that we will act in the united states and then hope to induce the world to follow, there are some areas where the more effective approach will be to start with the borderless solution by which i mean one designed to apply to a class of institutions and financial instruments, independent of geography and currency. where this does not prove possible on terms or in a time frame we like, we of course preserve the option to move alone. third, we live in a financial system in which nonbank financial institutions play a much larger role than they did in the past, a system in which the differences between the activities of the bank - centered financial institutions and nonbanks has diminished, and in which the largest commercial banks and investment banks compete

federal reserve bank of new york staff report no. 441, march 2010. several private - sector firms have estimated yield effects of similar magnitude. in addition, a working paper by james hamilton and jing wu, “ the effectiveness of alternative monetary policy tools in a zero lower bound environment, ” finds that changes in the federal reserve ’ s asset holdings produce considerable yield effects. under this view, the fomc ’ s influence on financial conditions is associated with the size and composition of its securities portfolio. this perspective provides a clear rationale for the reinvestment decision made at the august fomc meeting. the decline in the size of the federal reserve ’ s portfolio that would have occurred in the absence of the reinvestment program would have amounted to a passive tightening in the stance of monetary policy, as the portfolio balance effect would have gradually reversed. moreover, the extent of this tightening was increasing in response to the weakening of the economy, as lower longerterm yields were leading to more rapid repayment of mbs. this perverse effect was seen by the fomc as working against its efforts to reach its dual mandate. in effect, the policy approach that was implemented before the august meeting acted to mute the amplitude of movements in longer - term interest rates. as rates declined in response to a weakening of the economy, the federal reserve ’ s mbs holdings would decline more rapidly, effectively adding to the supply of duration held by the market. 4 this increase in the duration held by the market would tend to damp the decline in yields. with the change in strategy at its august meeting, the fomc no longer lets its aggregate duration holdings flow back into the market. this approach allows long - term interest rates to adjust fully to a weakening of the economy, which should act to better stabilize the economy. implementing the reinvestment policy so far, i have focused on the fomc ’ s august policy decision ; however, you may also be interested in the details of how the desk has actually implemented the reinvestment policy. the instructions from the fomc to the desk, from both the august fomc statement and the directive that was adopted at that meeting, were to keep the total face value of domestic securities held in the soma portfolio near their level at that time. the published size of the securities portfolio just ahead of the august meeting was $ 2. 054 trillion, so the desk adopted this level as the target for the portfolio. this is a notable