prepayable mortgages outstanding has risen from around $ 1 trillion in 1980 to almost $ 5 trillion today. as all of us are probably aware, the old model concentrated interest rate risk in depository institutions, specifically in savings and loans. and when interest rates soared in the early 1980s, the savings and loan industry suffered huge losses with collateral effects on the real economy. in comparison, the market - based model clearly seems to have spread the interest rate risk of mortgages throughout the economy, with depository institutions still bearing some of the risk through investments in mortgagebacked securities or callable debt. what are the lessons for policymakers? i can suggest two. first, policymakers still need to fulfill their traditional supervisory role. they need to ensure that regulated intermediaries manage prepayment risk effectively and have adequate capital to absorb losses. second, i would note that new risk - transfer instruments, such as swaps and swaptions, are playing an important role in transferring the interest rate risk of mortgages to a broader and more diversified group of investors. herding my second topic today is the concern that common approaches to risk management, such as value - atrisk modeling, may be promoting herding behavior that can destabilize markets. the idea is that market participants who use similar risk management techniques may respond to a perceived increase in the riskiness of their positions by paring back the size of those positions and perhaps by paring back positions in other markets as well. such a response, while rational from the perspective of individual market participants, may have the collective and unintended consequence of reducing market liquidity at the time when it is most needed. i recognize the relevance of the questions and realize that herding might theoretically occur in a number of markets. however, based on some observations of how models are actually constructed and used at financial firms, i would like to outline three reasons why this concern might be overstated. first, the sophistication and structure of risk - management models vary widely. this point applies with full force to value - at - risk models in use at commercial banks, an area the federal reserve has some knowledge of through our supervisory oversight. our examiners have observed that banks implement a common objective - - measuring the value - at - risk of the bank ’ s trading account - - in highly diverse ways. given their early stage of development and the diversity with which they are implemented, the use of these models does not seem likely to create

( 3 ) authority are for times of emergency, such as the ones we have been living through. when economic and financial conditions improve, we will put these tools back in the toolbox. the final area where we took steps was in bank regulation. the board made several adjustments, many temporary, to encourage banks to use their positions of strength to support households and businesses. unlike the 2008 financial crisis, banks entered this period with substantial capital and liquidity buffers and improved risk - management and operational resiliency. as a result, they have been well positioned to cushion the financial shocks we are seeing. in contrast to the 2008 crisis when banks pulled back from lending and amplified the economic shock, in this instance they have greatly expanded loans to customers. federal reserve board vice chair for supervision randal quarles spoke to you about these topics last week. the federal reserve has been entrusted with an important mission, and we have taken unprecedented steps in very rapid fashion over the past few months. in doing so, we embrace our responsibility to the american people to be as transparent as possible. we are deeply committed to transparency, and recognize that the need for transparency is heightened when we are called upon to use our emergency powers. this is particularly the case when congress appropriates taxpayer funds to back lending programs that the fed administers. in connection 3 / 4 bis central bankers'speeches with the cares act facilities — including the two corporate credit facilities, the main street lending program, the municipal liquidity facility, and the talf — we will be disclosing, on a monthly basis, names and details of participants in each facility ; amounts borrowed and interest rate charged ; and overall costs, revenues, and fees for each facility. thank you, i ’ d be happy to take your questions. 4 / 4 bis central bankers'speeches