another look? you see i figured that stress tests for banks were part and parcel of your job as ecb banking supervisor. but if we turn the tables, are there any stress tests for the supervisor? there aren ’ t any, are there? 4 / 7 bis central bankers'speeches oh yes there are! every stress test for the bank is also a stress test for the supervisor. ok, but i ’ ve nonetheless prepared a few very special stress cards for you in order to test your personal stress resilience. please go ahead and read out the first card. it reads : “ your office manager calls in sick. ” do you find that stressful? yes, in the first instance. but then i would simply put their calls through to me and get on with it. so you would really do that? yes, of course i would. i ’ m a woman. i ’ m well able to multitask. the next stress card. it reads : “ someone hacks into your work computer which stores important sensitive bank data. ” how would you react? i think that ’ s actually impossible. we have an extremely good security system at the ecb. you want to know how i would react? that would surely be a stress factor, wouldn ’ t it. confidential data? yes, of course. but our it experts would deal with it, and our colleague from communications would probably step in too and would then speak to you. it has never once happened to me, by the way. next card. it reads : “ you need to fly to an important meeting, but the pilots go out on strike unexpectedly. ” that has actually happened to me. that can happen occasionally and then you ask... you take that in your stride? yes, exactly, i would then return to the office and ask my staff to arrange a conference call. that is easily done these days. a video conference or something like that? yes, that ’ s right. we ’ ve one more card, if you ’ d like to take it? yes! it reads : “ you need to get to an executive board meeting at the ecb but you ’ re surrounded by a group of blockupy demonstrators as you enter the building. ” is your heart racing? well, i assume that the demonstrators pose no threat to life and limb, they simply want to make their views known, don ’ t they? yes. well, i ’ m in my element if i

jeremy c stein : large - scale asset purchases speech by mr jeremy c stein, member of the board of governors of the federal reserve system, at the third boston university / boston fed conference on macro - finance linkages, boston, massachusetts, 30 november 2012. * * * given that the conference theme is macro - finance linkages, i thought i would try to lay out a corporate finance perspective on large - scale asset purchases ( lsaps ). i have found this perspective helpful in thinking both about the general efficacy of lsaps going forward, and about the differential effects of buying treasury securities as opposed to mortgage - backed securities ( mbs ). but before i get started, please note the usual disclaimer : the thoughts that follow are my own and do not necessarily reflect the views of other members of the federal open market committee ( fomc ). i should also mention that these comments echo some that i made in a speech at brookings last month. 1 as i noted in that speech, i support the committee ’ s decision to purchase mortgage - backed securities ( mbs ) at a rate of $ 40 billion per month, in tandem with the ongoing maturity extension program in treasury securities, and its plan to continue with asset purchases if the committee does not observe a substantial improvement in the outlook for the labor market. i will start with the case of treasury lsaps, and then go on to discuss the differences that arise when the fed purchases mbs instead. one thing that seems clear in the data is that if you buy a lot of long - term treasury securities, this exerts significant downward pressure on their yields and term premiums. indeed, the fed ’ s past actions are likely one important reason why treasury term premiums are now near historic lows, on the order of minus 80 basis points, according to a model used by the board staff. 2 moreover, while this is not entirely uncontroversial, my own reading of the evidence is that there has also been substantial pass - through to corporate bond rates. based on this evidence, a reasonable estimate is that, if the fed were to undertake an additional $ 500 billion treasury lsap, both long - term treasury and corporate bond rates might be expected to decline by something on the order of 15 to 20 basis points. this observation leads to an important conceptual question : how should one expect a firm to respond when its long - term borrowing costs fall not because of a change in the expected