. the basel committee has been evaluating how the framework might be strengthened in areas such as the capital treatment of off - balance - sheet vehicles and the use of credit ratings to determine capital charges. the relatively lengthy transition to basel ii will allow more opportunity to absorb the lessons of the financial turmoil and make necessary adjustments to the framework. conclusion to summarize, the turmoil in credit markets underscores some important principles for bank risk management, including the value of proper risk identification and measurement, the need for robust and objective valuation methods, the importance of preparing for liquidity disruptions, and the critical role of strong oversight by senior managers. with renewed attention to these principles and the restoration of strong incentives for sound risk management, institutions should be able to overcome the difficulties we have seen in the recent application of the originate - to - distribute model and begin to use it successfully again. equally important, improvements in banks'risk management will provide a more - stable financial system by making firms more resilient to shocks. supervisors must insist on effective risk management and provide as much support as possible for the implementation of needed changes. recent events have also demonstrated the importance of generous capital cushions for protecting against adverse conditions in financial and credit markets. i have been encouraged by the recently demonstrated ability of many financial institutions, large and small, to raise capital from diverse sources. importantly, capital raising and balance sheet repair allow for the extension of new credit, which supports economic expansion. i strongly urge financial institutions to remain proactive in their capital - raising efforts. doing so not only helps the broader economy but positions firms to take advantage of new profit opportunities as conditions in the financial markets and the economy improve.

. i will return to this topic shortly, but for now, suffice it to say that a result of poor risk management at some financial institutions was that the spreading of risk, one of the purported benefits of the originate - to - distribute model, proved to be much less extensive than many believed. when investors were no longer willing or able to finance new structured credit products, many of the largest financial institutions had to fund instruments they could not readily sell or had to meet contingent funding obligations for which they had not adequately planned. the combination of unanticipated losses, which ate into capital cushions, and severe liquidity pressures has reduced the ability and willingness of some large financial institutions to make markets and to extend new credit, with adverse effects for the financial system and for the economy. both the pwg and the fsf reports highlighted the important role played by financial regulators in overseeing and helping to strengthen risk - management practices in the firms they supervise, and the reports recommended that the regulators review their own policies, guidance, and supervisory practices to identify areas in which improvements could be made. i will discuss some regulatory and supervisory responses to the recent developments later in my remarks. lessons for risk management at financial institutions with that brief diagnosis of our financial market turmoil as background, i turn now to some of the lessons learned thus far regarding the risk - management practices of financial institutions. the financial turmoil presented difficult challenges that were not fully anticipated by either financial institutions or regulators, but firms did vary in how well they were able to deal with those challenges. by comparing how some key firms fared during the recent period, we can better understand what worked well and what did not work so well. many of the points i will make are drawn from a report published in early march by a group of supervisory agencies from france, germany, switzerland, the united kingdom, and the united states – including the federal reserve – known as the senior supervisors group, or ssg. 2 this report employed a methodology similar to that used in the so - called horizontal the report, " observations on risk management practices during the recent market turbulence ”, provides a summary and analysis of a joint survey and review, initiated this past autumn, of risk - management practices during the recent financial stress. reviews regularly conducted by u. s. bank supervisors. we begin these reviews by identifying particular activities or practices that merit study. we then gather comparable information from a core set of institutions, with the objectives of identifying the principal differences in practice across