national boundaries. thus, the information requirements for conducting truly comprehensive macroprudential surveillance could be daunting indeed. macroprudential supervision also presents communication issues. for example, the expectations of the public and of financial market participants would have to be managed carefully, as such an approach would never eliminate financial crises entirely. indeed, an expectation by financial market participants that financial crises will never occur would create its own form of moral hazard and encourage behavior that would make financial crises more, rather than less, likely. with all these caveats, i believe that an increased focus on systemwide risks by regulators and supervisors is inevitable and desirable. however, as we proceed in that direction, we would be wise to maintain a realistic appreciation of the difficulties of comprehensive oversight in a financial system as large, diverse, and globalized as ours. conclusion although we at the federal reserve remain focused on addressing the current risks to economic and financial stability, we have also begun thinking about the lessons for the future. i have discussed today two strategies for reducing systemic risk : strengthening the financial infrastructure, broadly construed, and increasing the systemwide focus of financial regulation and supervision. work on the financial infrastructure is already well under way, and i expect further progress as the public and private sectors cooperate to address common concerns. the adoption of a regulatory and supervisory approach with a heavier macroprudential focus has a strong rationale, but we should be careful about over - promising, as we are still rather far from having the capacity to implement such an approach in a thoroughgoing way. the federal reserve will continue to work with the congress, other regulators, and the private sector to explore this and other strategies to increase financial stability. when we last met here in jackson hole, the nature of the financial crisis and its implications for the economy were just coming into view. a year later, many challenges remain. i look forward to the insights into this experience that will be provided by the papers at this conference.

, those actions were necessary and justified under the circumstances that prevailed at that time. however, those events also have consequences that must be addressed. in particular, if no countervailing actions are taken, what would be perceived as an implicit expansion of the safety net could exacerbate the problem of " too big to fail, " possibly resulting in excessive risk - taking and yet greater systemic risk in the future. mitigating that problem is one of the design challenges that we face as we consider the future evolution of our system. as both the nation's central bank and a financial regulator, the federal reserve must be well prepared to make constructive contributions to the coming national debate on the future of the financial system and financial regulation. accordingly, we have set up a number of internal working groups, consisting of governors, reserve bank presidents, and staff, to study these and related issues. that work is ongoing, and i do not want to prejudge the outcomes. however, in the remainder of my remarks today i will raise, in a preliminary way, what i see as some promising approaches for reducing systemic risk. i will begin by discussing steps that are already under way to strengthen the financial infrastructure in a manner that should increase the resilience of our financial system. i will then turn to a discussion of regulatory and supervisory practice, with particular attention to whether a more comprehensive, systemwide perspective in financial supervision is warranted. for the most part, i will leave for another occasion the issues of broader structural and statutory change, such as those raised by the treasury's blueprint for regulatory reform. strengthening the financial infrastructure an effective means of increasing the resilience of the financial system is to strengthen its infrastructure. for my purposes today, i want to construe " financial infrastructure " very broadly, to include not only the " hardware " components of that infrastructure – the physical systems on which market participants rely for the quick and accurate execution, clearing, and settlement of transactions – but also the associated " software, " including the statutory, regulatory, and contractual frameworks and the business practices that govern the actions and obligations of market participants on both sides of each transaction. of course, a robust financial infrastructure has many benefits even in normal times, including lower transactions costs and greater market liquidity. in periods of extreme stress, however, the quality of the see department of the treasury ( march 2008 ), blueprint for a modernized financial regulatory structure. financial infrastructure may prove critical.