conversations reflects the unique aspects of the north country economy, which suffered outsize job losses at the onset of the pandemic and continues to experience a reduction in tourism owing to border closures. this area, like many across the second district and around the country, has its challenges. but i expect a strong recovery will take hold here, supported by the improvement in the broader u. s. economy. the fed ’ s policy response this brings me to the fed ’ s policy response. in its december 2020 statement, the fomc said it would continue asset purchases at the current pace until it sees substantial further progress toward our maximum employment and price stability goals. 1 given what i explained earlier, i think it ’ s clear that we have made substantial further progress on achieving our inflation goal. there has also been very good progress toward maximum employment, but i will want to see more improvement before i am ready to declare the test of substantial further progress being met. assuming the economy continues to improve as i anticipate, it could be appropriate to start reducing the pace of asset purchases this year. i will be carefully assessing the incoming data on the labor market and what it means for the economic outlook, as well as assessing risks such as the effects of the delta variant. 3 / 4 bis central bankers'speeches it is important to remember that even after the asset purchases end, the stance of monetary policy will continue to support a strong and full economic recovery and sustained attainment of 2 percent average inflation. in particular, the fomc has indicated that it will continue to hold the target range for the federal funds rate at its current level until the economy reaches conditions consistent with its assessments of maximum employment, and inflation has reached 2 percent and is on track to moderately exceed 2 percent for some time. there is still a long way to go before reaching maximum employment, and over time it should become clearer whether we have reached 2 percent inflation on a sustainable basis. conclusion to close, i ’ ll say that it ’ s clear that the pandemic is far from over, both in terms of its effects on health and its effects on the economy. the unusual nature of this crisis means that this recovery is far different than anything we have seen before. but with time, i am confident that the economy will continue to move ever upward. thank you, and i look forward to your questions. 1 board of governors of the federal reserve system, federal reserve issues fomc statement, december 16, 2020

2 / 10 bis central bankers'speeches financial institutions, regulation reduces the run externalities associated with private money creation. effective capital regulation and supervision are the main tools for reducing investor concerns about the banking system ’ s solvency in stressful times. in addition, fdic deposit insurance complements strong capital by reducing depositors ’ incentives to run on banks. following the financial crisis, the regulatory and supervisory framework has been extended to more directly reduce risks from swings in the supply of liquidity within the financial system. in particular, the liquidity coverage ratio ( lcr ) reduces the likelihood of runs by forcing banks to hold highly liquid assets against expected future cash outflows. 11, 12 example of money fund reform runs can also occur on nonbanks. one particularly spectacular run during the financial crisis followed lehman ’ s bankruptcy and the reserve fund ’ s “ breaking the buck ” as investors fled prime money market funds. this run was stopped dramatically by a government guarantee. recent work by some new york fed colleagues provides a real - world example of how, in normal times, new regulation can induce investors to distinguish between safe and money - like assets. 13 they used the securities and exchange commission ’ s ( sec ) recent implementation of measures to reform the mmf industry as a quasi - natural experiment to characterize investors ’ preferences for money - like assets. 14 in 2014, the sec approved a new set of rules aimed at mitigating the fragility of prime mmfs. as of october 2016, prime funds have been required under certain conditions to impose liquidity fees on redemptions or gates halting the redemption of shares. 15 additionally, prime funds offering shares to institutional investors may no longer price such shares with fixed navs ; instead, they must price their shares at the market value of the underlying securities, much like standard mutual funds. by requiring prime mmfs to adopt a system of gates and fees, the reform made them less money - like ; floating navs reduced the money - likeness of the institutional subsegment even further. 16, 17 the differential impact of the sec ’ s mmf reforms — which made prime mmfs less money - like yet not riskier — can be used to distinguish between investors ’ preferences for money - likeness and safety in normal states of the world. figure 2 shows the industry ’ s aggregate assets around the implementation of the new rules. in anticipation of implementation, more than $ 1 trillion flowed from the prime mmf sector into the government mm