- extension chain. first, at the point of origination, underwriting standards became increasingly compromised in recent years. the most notorious example is, of course, u. s. subprime mortgages. in this case, as in others, the incentives faced by originators were an important source of the breakdown in underwriting. the revenues of the originators of subprime mortgages were often tied to loan volume rather than to the quality of the underlying credits, which induced some originators to focus on the quantity rather than the quality of the loans being passed up the chain. however, the problems with subprime mortgage underwriting were disguised for a time by the continued appreciation in home values. as long as house prices kept rising, president's working group on financial markets ( 2008 ), " policy statement on financial market developments ", march 13 ; financial stability forum ( 2008 ), “ report of the financial stability forum on enhancing market and institutional resilience ", april 7. subprime borrowers saw their home equity increase and were often able to refinance into more - sustainable mortgages. but when house prices began to stagnate and then fall, many subprime borrowers found themselves trapped in mortgages they could not afford. because subprime loans were frequently securitized and incorporated into complex structured products, the resulting losses spread throughout the financial system. although subprime mortgages are the most well - known instance of underwriting failure and were in some sense the trigger of the turmoil, the loosening of credit standards and terms occurred more broadly, even as market risk premiums contracted. for example, investors were willing to purchase so - called leveraged loans – used to finance mergers or buyouts – with few covenants or other protections. the pwg concluded that investors often took insufficient care in evaluating the risks of credit products, in part because they relied too much on evaluations provided by the credit rating agencies. unfortunately, the methodologies, data, and assumptions the agencies used to rate structured credit products proved deficient in many cases. when rising delinquencies and losses on mortgages forced the agencies to sharply downgrade many of these products, investors lost confidence in those ratings and became unwilling to provide new funds. as financing disappeared, the markets for structured credit products and for related investments seized up. another significant factor contributing to the financial turmoil was risk - management weaknesses at large global financial institutions that created and held complex credit products

, and i think we and they have been well served by a culture that emphasizes objective, expert analysis ; professionalism ; dedication ; and independence from political influence. whatever the fed may have achieved in recent years reflects the efforts of many people who are committed, individually and collectively, to pursuing the public interest. although the fed undoubtedly will face some difficult challenges in the years ahead, our people and our values make me confident that our institution will meet those challenges successfully. references adrian, tobias, daniel covitz, and nellie liang ( 2013 ). “ financial stability monitoring, ” finance and economics discussion series 2013 – 21. washington : board of governors of the federal reserve system, october. bis central bankers ’ speeches bagehot, walter ( [ 1873 ] 1897 ). lombard street : a description of the money market. new york : charles scribner ’ s sons. bernanke, ben s. ( 2013 ). “ the crisis as a classic financial panic, ” speech delivered at the fourteenth jacques polak annual research conference sponsored by the international monetary fund, washington, november 8. board of governors of the federal reserve system ( 2007a ). “ fomc announces it will increase the frequency and expand the content of economic projections released to the public, ” press release, november 14. — — — ( 2007b ). “ minutes of federal open market committee, october 30 – 31, 2007, ” press release, november 20. — — — ( 2012a ). “ federal reserve issues fomc statement, ” press release, december 12. — — — ( 2012b ). “ federal reserve issues fomc statement of longer - run goals and policy strategy, ” press release, january 25. — — — ( 2013 ). “ federal reserve issues fomc statement, ” press release, december 18. chen, han, vasco curdia, and andrea ferrero ( 2011 ). “ the macroeconomic effects of large - scale asset purchase programs, ” federal reserve bank of new york staff reports 527. new york : federal reserve bank of new york, december. chung, hess, jean - philippe laforte, david reifschneider, and john c. williams ( 2012 ). “ have we underestimated the likelihood and severity of zero lower bound events? “ journal of money, credit and banking, vol. 44 ( february supplement ), pp. 47 – 82. congressional budget office ( 2013 ). estimated impact