, how does one build an appropriate exit strategy from the time - out? in the second week of october there was no room for error on any of these strategic dimensions but instead of one unruly child and a parent playing out an enduring battle, a diverse set of policymakers were confronting a wide range of financial institutions with no experience with time - outs on either side. 7 further, full participation by systemically important firms was crucial due to the inter - connectedness of the financial system. the solution for the efficient operation of the time - out was “ on the fly ” to combine the power of the fdic to provide guarantees to liability holders of banks under the systemic risk exemption embedded in fdic improvement act with two other authorities. the first was the u. s. treasury ’ s new ability to provide capital from the new tarp funds, and the second was the federal reserve ’ s authority in unusual and exigent circumstances to flood the financial system with as much liquidity as it needed. in the latter case the appropriate measure of the escalation is not the actual amount of liquidity that was drawn from the federal reserve but the commitment to supply whatever was needed. 8 this commitment was captured succinctly in the minutes of the october 2008 fomc meeting : “... the committee agreed that it would take whatever steps were necessary to support the recovery of the economy. ” of course parents usually have the capacity to perform on a time - out if the initial announcement directs the child in the appropriate direction. in this case, the initial the time - out of an extended bank holiday used by u. s. president franklin d. roosevelt in 1933 was not available. around $ 1 trillion was drawn but the total capacity of the existing and new facilities offered by the federal reserve was closer to $ 4 trillion. announcement had to direct thousands of institutions in the appropriate direction on equal terms, including a majority that had not been misbehaving in the run - up to the crisis. in particular, stronger institutions might view their agreement to use the guarantees and issue equity to the u. s. treasury as stigmatizing and make them more vulnerable to runs. the solution was to obtain agreement from nine systemically important institutions to participate at the start of the time - out on the same terms available to thousands of other eligible financial institutions. the time - out announced on october 14 was a critical success in terms of stopping the run on the global financial system, but it

in the first place. the third challenge for the federal reserve is to put financial stability on par with monetary policy. as our experience from 2007 to 2009 has demonstrated, monetary policy cannot work properly when there is financial instability. when financial instability occurs, it disturbs market functioning and can impair bank balance sheets in a way that disrupts their financial intermediation function, constraining the availability of credit for households and businesses. this, in turn, can lead to further reductions in aggregate demand that put additional stress on bis central bankers ’ speeches the weakened financial system. financial stability cannot be subordinated to any other priority. the fourth challenge is to sustain and enhance the capabilities of the new york fed. this starts most obviously in continuing to attract, develop and retain the best people. but it also extends to tending to the so - called culture of the institution – for example, ensuring that good ideas rise to the top no matter where they originate, and that people feel comfortable to challenge the conventional wisdom. these challenges are energizing, and that ’ s why being president of the new york fed is the greatest job in the world. and i am confident that, because of the talent and dedication of our staff, the new york fed will succeed in surmounting the challenges it faces now and will face over the next 100 years. and to drive home the point of our staff ’ s dedication, i would like to highlight the efforts of one person, rosemary lazenby, who has made this exhibit possible. rosemary is the longest tenured employee at the bank – 55 years – she is our resident historian and curator and she has delayed her retirement in order to develop this centennial exhibit. her efforts are just another example of what really glistens at 33 liberty street ( and i am not referring to the gold in our vault ). thank you rosemary, and thank you all for coming out this this evening to enjoy the centennial exhibit. bis central bankers ’ speeches