least three specific concerns. first, market illiquidity may result from a leading dealer's exit and that illiquidity has the potential to adversely affect fannie and freddie and other hedgers of mortgages and mbs. second, meeting the demands for options by mortgage hedgers involves market risk to dealers, a concern that has been heightened by the fact that the notional value of options sold by dealers significantly exceeds the notional value purchased. third, the failure of a leading dealer could result in counterparty credit losses for market participants. the extent to which these concerns are valid depends on how effectively market participants manage market risk and counterparty credit risk. to obtain information on participants'risk - management practices, members of the federal reserve staff last summer interviewed some of the leading market participants, including fannie and freddie and half a dozen leading derivatives dealers. the potential for a dealer's exit to adversely affect mortgage hedgers is dependent upon hedgers'diversification of counterparties, the way in which hedgers use options, and the underlying reason for such an exit. fannie and freddie have about twenty dealers as options counterparties, including investment banks and foreign banks as well as u. s. commercial banks. however, only about five or six of them have direct access to the supply of options from debt issuers ; the others must depend on the interdealer market for a substantial portion of their supply. the exit of one of these five or six may or may not adversely affect market liquidity, depending on the reason for the exit and on the way in which other dealers react. if a dealer is forced to exit because of a credit problem unrelated to its options dealing, other dealers are likely to take its place quickly. if the exit is the result of losses from options dealing, possibly in difficult market conditions, other dealers with similar positions are likely to be pulling back as well, which could leave the options markets quite illiquid. in any event, fannie and freddie and other mortgage hedgers do not rely on continuous liquidity in the options markets. rather, they purchase options periodically and opportunistically. provided that options market illiquidity is not protracted ( say more than a month ), they could postpone transacting in those markets until liquidity returns, without exceeding their internal risk limits. by contrast, mortgage hedgers do rely on continuous liquidity in the swaps market because they currently use swap

jerome powell : welcoming remarks " expanding the impact : increasing capacity and influence " welcoming remarks by mr jerome h powell, member of the board of governors of the federal reserve system, at " expanding the impact : increasing capacity and influence ", the 2017 interagency minority depository institution and community development financial institution bank national conference, los angeles, california, 5 april 2017. * * * thank you, donna. good morning and welcome to the federal reserve. we are honored to have you here today as we host the biennial interagency minority depository institution ( mdi ) and community development financial institution bank conference. my colleagues from the federal reserve bank of san francisco and i are especially honored to be hosting you in los angeles. as you probably know, all of the previous interagency mdi conferences have been held on the east coast, mainly in washington, d. c. however, because the largest concentration of minority banks is located here in southern california, it seemed natural to bring this conference west. the federal reserve seeks to support mdis in a number of ways, including our partnership for progress, our program for outreach and technical assistance to mdis. both the office of the comptroller of the currency and federal deposit insurance corporation share our goal of preserving and promoting mdis because you are critical institutions to the communities you serve and the larger u. s. economy. and i note that congress has also recognized your importance, mandating our respective agencies to help support mdis. from the perspective of someone who sits on the federal open market committee, i see many ways that the federal reserve can not only support mdis but is itself also supported by them, and i would like to talk about four of these ways today. first, half of our monetary policy mandate is maximum sustainable employment. that means that we need to be aware of employment trends across all communities in america, not just the top - line averages, since unemployment rates vary significantly across races and geographies. for the first time, last year, we put into our monetary policy report to congress a section that detailed how post - recession economic gains have been distributed across races. 1 you, as mdis, are committed to understanding and serving these diverse communities. i know that, for example, your small business loans to minority business owners make a difference in the employment rates of minority communities. i thank you for that work, and we will continue to work closely with you to better understand the employment dynamics of underserved