difficult to obtain elsewhere, and allowing a more orderly process of asset sales and the necessary deleveraging by financial institutions. ultimately, however, market participants themselves must address the fundamental sources of financial strains by raising new capital, restructuring balance sheets, and improving risk management. this process is likely to take some time. the federal reserve's various liquidity measures should help facilitate that process indirectly by boosting investor confidence and by reducing the risk of severe disruption during the period of adjustment. once financial conditions become more normal, the extraordinary provision of liquidity by the federal reserve will no longer be needed, and financial institutions will again look to private counterparties, and not central banks, as a source of ongoing funding. consistent with the historical mission of the federal reserve, the third component of our policy response has been to use all our available tools to promote financial stability, which is essential for healthy economic growth. at times, this has required working to preserve the stability of systemically critical financial institutions, so as to avoid further costly disruptions to both the financial system and the broader economy during this extraordinary period. in particular, the federal reserve collaborated with the treasury to facilitate the acquisition of the investment bank bear stearns by jpmorgan chase and to stabilize the large insurer, american international group ( aig ). we worked with the treasury and the federal deposit insurance corporation ( fdic ) to put together a package of guarantees, liquidity access, and capital for citigroup. other efforts include our support of the actions by the federal housing finance agency and the treasury to place the government - sponsored enterprises ( gses ) fannie mae and freddie mac into conservatorship and our work with the fdic and other bank regulators to assist in the resolution of troubled depositories, such as wachovia. in each case, we judged that the failure of the institution in question would have posed substantial risks to the financial system and thus to the economy. the federal reserve has worked to promote financial stability through other means as well, such as strengthening the financial infrastructure. for example, the federal reserve bank of new york has led cooperative efforts to improve the clearing and settlement procedures for credit default swaps and other over - the - counter derivatives. in addition, the federal reserve is collaborating with the securities and exchange commission and the commodity futures trading commission to facilitate the development of central counterparties for the trading of credit default swaps. properly managed, central counterparties can mitigate the counterparty risk that

ben s bernanke : federal reserve policies in the financial crisis speech by mr ben s bernanke, chairman of the board of governors of the us federal reserve system, at the greater austin chamber of commerce, austin, texas, 1 december 2008. * * * it is a privilege for me to be here in texas, and i would like to thank the austin chamber for hosting this luncheon. the texas economy is strong and diversified, accounting for more than a trillion dollars of output last year. however, our nation, and texas too, is being tested by economic and financial challenges. those challenges and the federal reserve's policy responses are the topic of my remarks today. federal reserve policies during the crisis as you know, this extraordinary period of financial turbulence is now well into its second year. triggered by the contraction of the u. s. housing market that began in 2006 and the associated rise in delinquencies on subprime mortgages, the crisis has become global and is now affecting a wide range of financial institutions, asset classes, and markets. constraints on credit availability and slumping asset values have in turn helped to generate a substantial slowing in economic activity. the federal reserve's strategy for dealing with the financial crisis and its economic consequences has had three components. first, to offset to the extent possible the effects of the crisis on credit conditions and the broader economy, the federal open market committee ( fomc ) has aggressively eased monetary policy. the easing campaign began in september 2007, shortly after the turbulence began, with a cut of 50 basis points in the target for the federal funds rate. the cumulative reductions in the target rate reached 100 basis points – that is, a full percentage point – by the end of 2007. as indications of economic weakness proliferated, the committee continued to respond, reducing the target rate by an additional 225 basis points by the spring of this year. by way of historical comparison, this policy response stands out as exceptionally rapid and proactive. in taking these actions, we aimed not only to cushion the direct effects of the financial turbulence on the economy, but also to reduce the risk of a so - called adverse feedback loop in which economic weakness exacerbates financial stress, which, in turn, leads to further economic damage. unfortunately, despite the support provided by monetary policy, the intensification of the financial turbulence this fall has led to a further deterioration in the economic outlook. the committee again responded by cutting the target for the