also triggered by a foreign event, namely the severe global financial crisis and the associated collapse of confidence. in both episodes the baseline scenario we outlined in the ipom and ief at the time went through unprecedented changes. most recently, february ’ s catastrophe made it necessary to adjust our projections, particularly for the short term, to include the effects on output of this natural disaster. as we shared with you a minute ago, the data for the last quarters show, beyond the immediate and medium - term effects of the earthquake, that the economy is growing strongly, financial conditions have been steadily normalizing, employment is on the rise and inflation is approaching the 3 % target. the most important difference between now and previous episodes during 2007 – 2009 are the fundamentals behind our current macroeconomic scenario. while in earlier years the larger part of inflationary and output fluctuations originated abroad, today they are related with macroeconomic developments at home. in particular, the foreseen closing of output gaps and the current level of the mpr, which is highly stimulative compared with several measurements of its neutral level. thus, monetary policy must be applied in consistency with a stronger domestic scenario and in line with the inflation target. high risks persist internationally. financial markets around the world and in some european countries are raising a red flag. although not part of the baseline scenario, we cannot rule out a worsening of global economic and financial conditions. overall, the tensions in europe are something we had commented in several previous presentations and were related not only with the need to put forward expansionary policies to avert further deterioration of output in the face of the global crisis, but also with the gradual and orderly withdrawal of fiscal and monetary policy stimulus packages in the world. what prevented the financial collapse of late 2008 from becoming a second great depression were the strong fiscal and monetary stimulus packages around the world. larger fiscal deficits are the outcome of increased expenditure and reduced taxes, in addition to a normal deterioration associated with a recessive period. chile was able to make an unprecedented effort thanks to its solid financial situation and sound macroeconomic policies : the exchange rate adjusted without triggering larger imbalances ; the inflation targeting scheme was consistent with a drastic and significant change of sign the monetary policy stance and the conduct of public finances managed to implement a highly countercyclical fiscal package that used part of accumulated savings from previous years. however, not all the economies were in the same position when the crisis hit. the situation has been particularly complex for

susan s bies : bank performance and corporate governance remarks by ms susan s bies, member of the board of governors of the us federal reserve system, at the 112th annual meeting of the tennessee bankers association, hot springs, virginia, 11 june 2002. * * * good morning. thank you for the invitation to speak to members of the tennessee bankers association today. i have really enjoyed getting to talk to many old friends. some of you have asked if i have had any surprises in my new role as a governor of the federal reserve board. i must say the biggest surprise is the amount of reading that i do. i haven ’ t read so much on so many different topics since i was in graduate school! not only do i get to discuss economics and monetary policy, but also bank regulation and operations issues. even though i have experience at a federal reserve bank and at first tennessee bank for a total of twenty - six years, i find that wearing the hat of a central banker makes me consider issues facing the financial industry in new ways. i hope that over the years i can continue to meet with groups like yours so that i stay up to date on issues important to bankers. in my comments today, i will address : first, the financial performance of u. s. banks, in particular, of community banks ; second, the improvements that banks large and small are making in measuring and managing risk ; and, third, the responsibilities of directors and senior managers in corporate governance. in my view, these topics are integrally linked and, in light of current questions of confidence in america ’ s corporations, quite timely. fourth and finally, i would also like to mention the proposal the federal reserve has issued for comment on changes to the discount window. financial condition of u. s. banks last year was exceptional in many respects, with the united states slipping into what appears to have been a mild recession, and with the terrorist attacks in september. in response, the federal reserve reduced interest rates at every meeting of the federal open market committee in 2001 and an additional three times between meetings, for a total of eleven rate cuts accumulating to 475 basis points. the federal reserve has now moved from a policy bias to address weakness, to one where the risks of inflation and weakness are balanced. credit quality deterioration is concentrated in larger corporations, with several filing for bankruptcy. serious concerns have arisen about the integrity of corporate management and financial reporting. argentina ’ s economic difficulties reminded us, yet again