to require a period of below - trend growth and some softening of labor market conditions. restoring price stability is essential to set the stage for achieving maximum employment and stable prices over the longer run. before concluding, let me briefly address the condition of the banking sector. the u. s. banking system is sound and resilient. as detailed in the box on financial stability in the june monetary policy report, the federal reserve, together with the treasury department and the federal deposit insurance corporation, took decisive action in march to protect the u. s. economy and to strengthen public confidence in our banking system. the recent bank failures, including the failure of silicon valley bank, and the resulting banking stress have highlighted the importance of ensuring we have the 2 / 3 bis - central bankers'speeches appropriate rules and supervisory practices for banks of this size. we are committed to addressing these vulnerabilities to make for a stronger and more resilient banking system. we understand that our actions affect communities, families, and businesses across the country. everything we do is in service to our public mission. we at the fed will do everything we can to achieve our maximum - employment and price - stability goals. thank you. i am happy to take your questions. 1 a box in our latest monetary policy report, " developments in employment and earnings across demographic groups, " discusses differences in labor market outcomes among segments of the population. 2 a box in our latest monetary policy report, " developments in the federal reserve's balance sheet and money markets, " discusses changes in the size of the federal reserve's balance sheet. 3 for a discussion of bank credit availability, see the box " recent developments in bank lending conditions " in the latest monetary policy report. 3 / 3 bis - central bankers'speeches

the prices to banks of government deposit guarantees, or of access to the safety net more generally, do not, and probably cannot, vary sufficiently with risk to mimic market prices. the problems that arise from the retarding of the pressures of market discipline have led us increasingly to accept supervision and regulation that endeavors to simulate the market responses that would occur if there were no safety net, but without giving up its protections. to be sure, we should recognize that if we choose to have the advantages of a safety net and a leveraged system of financial intermediaries, the burden of managing risk in the financial system will not lie with the private sector alone. with leveraging there will always exist a remote possibility of a chain reaction, a cascading sequence of defaults that will culminate in financial implosion if it proceeds unchecked. only a modern central bank, with its unlimited power to create money, can with a high probability thwart such a process before it becomes destructive. hence, central banks will of necessity be drawn into becoming lenders of last resort. but implicit in the existence of such a role is that there will be some form of allocation between the public and private sectors of the burden of risk of extreme outcomes. thus, central banks are led to provide what essentially amounts to catastrophic financial insurance coverage. such a public subsidy should be reserved for only the rarest of disasters. if the owners or managers of private financial institutions were to anticipate being propped up frequently by government support, it would only encourage reckless and irresponsible practices. in theory, the allocation of responsibility for risk - bearing between the private sector and the central bank depends upon an evaluation of the private cost of capital. in order to attract, or at least retain, capital, a private financial institution must earn at minimum the overall economy ’ s rate of return, adjusted for risk. in competitive financial markets, the greater the leverage, the higher the rate of return, before adjustment for risk. if private financial institutions have to absorb all financial risk, then the degree to which they can leverage will be limited, the financial sector smaller, and its contribution to the economy more limited. on the other hand, if central banks effectively insulate private institutions from the largest potential losses, however incurred, increased laxity could threaten a major drain on taxpayers or produce inflationary instability as a consequence of excess money creation. thus, governments, including central banks, have been given certain responsibilities related to their banking