. investors became decidedly less willing to provide funds at longer tenors. treasury yields fell to near historic lows, in part as investors sought refuge in dollardenominated, highly liquid, safe - haven assets. equity prices, reacting to increased risk and prospects for weaker global growth, also fell. broad equity price indexes touched lows as much as 14 percent below their recent peak in april. and retail investors may have experienced one scare too many ; outflows from equity mutual funds appear to rival the retreat in late 2008. risk spreads on u. s. investment - grade and high - yield bond prices rose, and corporate bond issuance fell to about half the run - rate of earlier this year. broad measures of industrial commodity prices decreased substantially from their peaks – mostly on account of weaker expected global demand. there has been, however, some modest improvement across some markets in the most recent weeks. as i noted, a moderate cyclical recovery characterizes the last several quarters in the united states. but while the recovery is proceeding, investors remain uncertain about its trajectory. financial market participants are still searching – perhaps better characterized as lurching – for a new equilibrium. the economy ’ s path depends in part on whether a new market and public policy equilibrium is established to keep the financial repair process on track. if volatility in financial markets persists at elevated levels, the expected pickup of business fixed investment may disappoint. business leaders in the united states may react to the latest in a long series of shocks by postponing investments in capital and labor alike. in that way, massive excess cash balances might not be a source of strength, but a reminder of caution. if, however, volatility levels across asset markets abate – indicating that the financial repair process is continuing – the economic recovery should continue apace. businesses and consumers would then be better positioned to convert the recovery into a more durable expansion. an updated crisis response manual given recent u. s. experience in responding to the financial crisis, allow me to offer for consideration some ideas to inform the policy response going forward. you can judge for yourselves whether policymakers – at home or abroad – will be receptive to these ideas. first, don ’ t blame the mirror. in times of economic weakness or financial distress, policymakers are often troubled by the messages embedded in financial market prices or bank lending statistics. some supervisors might disagree – even strongly – with the prices markets assign to a banking system

and coordinate contingency plans. fourth, modifications resulting from system or regulatory changes that have the potential to disrupt year 2000 programs should be limited. it is important that firms carefully manage the risks associated with making changes to their internal information systems in 1999 and early 2000. firms should avoid introducing new it applications that could generate changes to critical business applications that have been renovated, tested and certified. the federal reserve in october 1998 implemented an internal change management policy that restricts system changes to those deemed absolutely critical. similarly, legislatures and regulators should limit legal and regulatory changes that might require resources to be diverted from a financial organization ’ s year 2000 program. before issuing a legal or regulatory change, regulators should consider whether or not the action could be delayed until after 2000. the public ’ s obligations with respect to year 2000 finally, all of us as members of the public have obligations with respect to year 2000. the first is to maintain perspective and rely on common sense. as we get closer to the century date change, there will no doubt be more sensational coverage in the media. our obligation, as always, is to be smart consumers of information and to listen to responsible, not alarmist, voices. remember, as with anything that has a degree of uncertainty, there will always be those who predict the most dire outcomes. they have generally been wrong in the past, and i expect that they will be wrong again. our second obligation is to maintain reasonable and responsible patterns of behavior. there are likely to be some disruptions from the century date change ; nothing this complex can be perfectly faultless. however, we should remember that there have been serious disruptions to service in daily life before, from storms, temporary electrical outages, disruptions of telephone service, etc. in general, these prove to be annoying and inconvenient, but nothing more. finally, we should all recognize that most systems are built to withstand reasonable service demands. if we stress them by changing normal usage patterns, we may experience delays, not because of year 2000 problems, but rather due to capacity overload. conclusion i believe that the financial services industry has made great progress in addressing year 2000 issues. i am cautiously optimistic that the united states and the global economy will weather the century date change without major disruptions to economic activity. during this next year you will not only need to do your best to continue to repair and test your own systems, but will also need to evaluate the risk of potential failures and the effect of