higher inflation and interest rates in the u. s. and in many other countries around the world. but we should not assume that “ more ” is always better. more regulation and more supervision are see michelle w. bowman, “ the path forward for bank capital reform ” ( remarks at protect main street, sponsored by the center for capital markets at the u. s. chamber of commerce, washington, d. c., january 17, 2024 ), https : / / www. federalreserve. gov / newsevents / speech / files / bowman20240117a. pdf. - 13 only effective if the changes are targeted to address an existing problem and are appropriately focused and efficient. 14 when they are targeted and efficient, they may result in a net positive both in bank safety and soundness, and in financial stability. the function of bank regulators is not to create a bank regulatory framework that eliminates risk. banking is inherently about managing, not eliminating, risk. closing my remarks today are not meant to be an exhaustive list of all the financial stability threats facing the u. s. banking system, but i would be remiss in concluding without briefly mentioning a few other key financial stability risks, all of which i expect are familiar to you. first, monetary policy and the fight against inflation. this is a key risk identified in the financial stability report, and in surveys of bankers. when effectively implemented, monetary policy promotes price stability and maximum employment. in the long run, achieving both of these objectives promotes the stability of the broader financial system. it is of utmost importance that we maintain credibility in pursuing our fight against inflation by proceeding carefully and deliberately to achieve our 2 percent goal. but we cannot ignore the fact that monetary policy can present risks to the banking system and the broader financial system. changes in interest rates can make it more difficult for banks to manage interest rate risk, particularly in the face of rapid rate increases like those from 2022 and 2023. we know that many banks have seen a significant increase in unrealized losses on their balance sheets, a trend that has led to pressure on liquidity, funding, and capital for some institutions. see bowman, “ the path forward for bank capital reform. ” - 14 while monetary policy mandates may support long - term financial stability, monetary policy is an independent function that may heighten short - term stresses in the banking system. our supervisory activities should reflect an awareness of these effects on bank management decision

largely static after 1982. estrella ( 2002 ) finds that secular changes in mortgage securitization have reduced the interest sensitivity of housing to short - term interest rates and the response of real output to an unanticipated change in monetary policy. dynan, elmendorf and sichel ( 2006 ) argue that financial innovation has made it easier for households to use the equity in their homes to buffer their spending against income shocks, thereby reducing the volatility of aggregate consumption. studies by hurst and stafford ( 2004 ) and bennett, peach and peristiani provide indirect evidence supporting this argument. conclusion i hope this exploration of the history of housing finance has persuaded you that institutional factors can matter quite a bit in determining the influence of monetary policy on housing and the role of housing in the business cycle. certainly, recent developments have added yet further evidence in support of that proposition. the interaction of housing, housing finance, and economic activity has for years been of central importance for understanding the behavior of the economy, and it will continue to be central to our thinking as we try to anticipate economic and financial developments. in closing, i would like to express my particular appreciation for an individual whom i count as a friend, as i know many of you do : edward gramlich. ned was scheduled to be on the program but his illness prevented him from making the trip. as many of you know, ned has been a research leader in the topics we are discussing this weekend, and he has just finished a very interesting book on subprime mortgage markets. we will miss not only ned's insights over the course of this conference but his warmth and wit as well. ned and his wife ruth will be in the thoughts of all of us. references benito, a., j. thompson, m. waldron, and r. wood ( 2006 ). " house prices and consumer spending " ( 420 kb pdf ), bank of england quarterly bulletin, vol. 46 ( summer ), 142 - 54. bennett, p., r. peach, and s. peristiani ( 2001 ). " structural change in the mortgage market and the propensity to refinance, " journal of money, credit and banking, vol. 33 ( no. 4 ), pp. 955 - 75. bernanke, ben s. ( 2007 ). " the subprime mortgage market, " speech delivered at the federal reserve bank of chicago's 43rd annual conference