constitutes finality of a sale when the entire transaction is conducted electronically. other examples are determination of what constitutes a signature in a fully electronic transaction or of how state law applies to electronic business transactions, some of which are conducted by multiple parties in multiple states. other regulatory issues arise when technological advances allow new entities to leapfrog traditional institutions and command major market positions. this phenomenon is most clearly defined in the securities industry, where the electronic communication networks ( ecns ) - - now only six years old - account for 50 percent of the transactions that take place on nasdaq. these changes, in turn, have important regulatory implications for banking organizations. the definition of what is or should become a " banking business " can rapidly change and in many cases should change if banks are to remain competitive and innovative in financial markets. a second fundamental change involves bank supervision - - it is the shift from a transaction - based to a risk - based focus. as financial institutions increased in size and complexity, it became clear that examiners could not keep pace in the historic manner of examining transactions. instead, examiners needed to evaluate large, complex institutions'ability to identify and manage risk. for example, in evaluating credit - risk exposures, examiners first determine how credit risk is managed. they look, for example, at such basic elements of risk management as the way the institution establishes its risk parameters and more specific elements of credit administration and credit review. they evaluate riskmanagement models or tools that the institution uses and their suitability to the relative sophistication of the institution's loan portfolio. determining the level of individual transaction testing depends, in part, on the results of the initial assessment. banking regulators are still shifting from transaction - based to risk - based examination procedures, but our ability to keep pace with the increasing size and sophistication of our largest institutions necessitates that we successfully make that transition. besides looking at credit risk, the federal reserve also specifically evaluates banks for market risk, liquidity risk, operational risk, legal risk, and reputational risk. the potential exposure of reputational risk has become quite apparent after the recent experiences of enron and arthur andersen. current role of the federal reserve three years ago, the congress concluded more than twenty years of negotiation and produced a major reform of financial services laws and regulations. in very brief summary, this new law allows banks, securities firms, and insurance underwriters to function using common ownership by a newly authorized

cannot be reduced below zero, the federal reserve and central banks in other countries have employed nonstandard policies and approaches that do not rely on reductions in the short - term interest rate. we are still learning about the efficacy and appropriate management of these alternative tools. in the remainder of my remarks i will discuss these issues in the context of current economic and policy developments. i will comment on the near - term outlook for economic activity and inflation. i will then compare that outlook to some quantitative measures of the federal reserve ’ s objectives, namely, the longer - run outcomes that fomc participants judge to be most consistent with its dual mandate of maximum employment and price stability. finally, i will observe that, in a world in which the policy interest rate is close to zero, the committee must consider the costs and risks associated with the use of nonconventional tools when it assesses whether additional policy accommodation is likely to be beneficial on net. the outlook for growth and employment the arbiters across the river in cambridge, the business cycle dating committee of the national bureau of economic research, recently made their determination : an economic recovery began in the united states in july 2009, following a series of forceful actions by central banks and other policymakers around the world that helped stabilize the financial system and restore more - normal functioning to key financial markets. the initial upturn in activity, which was reasonably strong, reflected a number of factors, including efforts by firms to better align their inventories with their sales, expansionary monetary and fiscal policies, improved financial conditions, and a pickup in export growth. however, factors such as fiscal policy and the inventory cycle can provide only a temporary impetus to recovery. sustained expansion must ultimately be driven by growth in private final demand, including consumer spending, business and residential investment, and net exports. that handoff is currently under way. however, with growth in private final demand having so far proved relatively modest, overall economic growth has been proceeding at a pace that is less vigorous than we would like. in particular, consumer spending has been inhibited by the painfully slow recovery in the labor market, which has restrained growth in wage income and has raised uncertainty about job security and employment prospects. since june, private - sector employers have added, on net, an average of only about 85, 000 workers per month – not enough to bring the unemployment rate down significantly. consumer spending in the quarters ahead will depend importantly on the pace of job creation but also on households ’ ability to repair