##ll, u. s. banks and investment banks were highly competitive and successful as each specialized in lending to or underwriting businesses all over the world. there is considerable evidence that under glass - steagall the united states was at no competitive disadvantage to europe, with its mingled merchant banking system. the united states led the world – because it had strong, prudently run institutions that knew how to manage money in the best interests of the client. this categorization of financial activities is from matthew richardson, roy smith and ingo walter in chapter 7 of regulating wall street : the dodd - frank act and the new architecture of global finance, edited by viral v. acharya, thomas f. cooley, matthew richardson, ingo walter, new york university stern school of business, john wiley & sons inc., 2010. bis central bankers ’ speeches second, there is no strong evidence of unlimited economies of scale and even less for wide economies of scope. although both exist, they are captured at an asset size far less than that of sifis today. third, large corporations would have ample convenient access to commercial and traditional investment banking services inside commercial banking. they would have to go to securities dealers to purchase swaps and other derivatives for hedging purposes, something that has been done in the past without difficulty. finally, it also seems improbable to me that any country should be willing or able to expand its safety net or to expose its taxpayers to the undefined risks of protecting ever - larger and more complex banking organizations. instead, what countries should be focused on now is getting back to fundamentals aimed at simplifying highly complex and unstable sifis. the focus should be on financial stability. reforming the shadow banking system a legitimate concern of limiting the safety net is that this could worsen the risk of financial instability by pushing activities to the unregulated shadow banking system. clearly, focusing solely on the regulated banking industry and ignoring the unregulated shadow banking system would not solve the problem and, in fact, might expand the shadow banking sector that was an integral part of the financial crisis. much of the instability in the shadow banking system stems from its use of short - term funding for longer - term investment. the solution to this instability problem is not to provide a safety net for the shadow banks and regulate them more but, instead, to remove exceptions in which money market instruments are treated essentially as deposits. the current exceptions encourage significant short -

just five years, the housing bubble collapsed and asset values have fallen dramatically. the debt levels, however, remain, impeding our ability to recover from this recession. i would argue that the result of our short - run focus in 2003 was to contribute to 10 percent unemployment five years later. that said, i am not advocating for tight monetary policy. i ’ m advocating that the fomc carefully move to a non - zero rate. this will allow the market to begin to read credit conditions and allocate resources according to their best use rather than in response to artificial incentives. more than a year ago, i advocated removing the “ extended period ” language to prepare the markets for a move to 1 percent by the fall of 2010. then, depending on how the economy performed, i would move rates back toward more historic levels. i want to see people back to work, but i want them back to work with some assurance of stability. i want to see our economy grow in a manner that encourages stable economic growth, stable prices and long - run full employment. if zero interest rates could accomplish this goal, then i would support interest rates at zero. in my written testimony, i have included three speeches that describe in more detail my position on monetary policy. monetary policy cannot solve every problem. i believe we put the economy at greater risk by attempting to do so. thank you, mr. chairman. i look forward to your questions. bis central bankers ’ speeches