understand in detail how financial markets operate. effective and efficient financial markets do not happen automatically. the precise structure of each financial market, its trading rules, the mix of market participants and the constraints they face, how and how fast information is transmitted, all part of the microstructure of that market, do make an important difference. i think that fact has now become more widely recognized by economists. but it was not the case just a couple of 1 / 3 bis - central bankers'speeches decades ago, when most macroeconomists almost routinely assumed in their models that financial markets would function perfectly in the background. i believe that has changed - witness, for instance, the growth of macrofinance in recent years - and that change has certainly been an improvement. a few words about the program and interagency work now, let me say a few words about the first financial market this conference will focus on, the market for u. s. treasury securities. the u. s. treasury market clearly remains the largest and deepest government securities market in the world. but it has changed a lot. to quote a recent speech by our former fed colleague nellie liang, who is now the under secretary for domestic finance at the treasury, " the market has changed significantly over time, with changes in technology, participants, and regulations, and treasury debt outstanding has grown substantially. " 1 some episodes of stress in the treasury market, including a flash event in 2014 and, more recently, the treasury repo market disruptions of september 2019 and the socalled dash - for - cash episode in 2020, have focused the attention of researchers and u. s. government agencies on the plumbing of the market and on the composition and behavior of its participants. for example, an interagency working group, composed of staff from the u. s treasury, the sec, the cftc, the new york fed, and the board of governors - several members of the group are here - has been studying a broad range of ideas to enhance the resilience of the market. the u. s. treasury has also spearheaded initiatives to enhance data transparency. and the sec has sought comments on several proposals that could materially alter the structure of the market. the federal reserve does not regulate markets, but we obviously have a special interest in the treasury market, in part because some of our policy tools operate through that market and because of how important treasury market functioning is to financial stability. and the recent discussions on the

to banks reduces libor, other borrowers will also see their payments decline. because interbank markets are global in scope, the federal reserve has also approved bilateral currency liquidity agreements with 14 foreign central banks. these so - called swap facilities have allowed these central banks to acquire dollars from the federal reserve that the foreign central banks may lend to financial institutions in their jurisdictions. the purpose of these liquidity swaps is to ease conditions in dollar funding markets globally. improvements in global interbank markets, in turn, promote greater stability in other markets at home and abroad, such as money markets and foreign exchange markets. the provision of short - term credit to financial institutions exposes the federal reserve to minimal credit risk, as the loans we make to financial institutions are generally short - term, overcollateralized, and made with recourse to the borrowing firm. in the case of the currency swaps, the foreign central banks are responsible for repaying the federal reserve, not the financial institutions that ultimately receive the funds, and the fed receives an equivalent amount of foreign currency in exchange for the dollars it provides foreign central banks. although the provision of ample liquidity by the central bank to financial institutions is a timetested approach to reducing financial strains, it is no panacea. today, concerns about capital, asset quality, and credit risk continue to limit the willingness of many intermediaries to extend credit, notwithstanding the access of these firms to central bank liquidity. moreover, providing liquidity to financial institutions does not directly address instability or declining credit availability in critical nonbank markets, such as the commercial paper market or the market for asset - backed securities. to address these issues, the federal reserve has developed a second set of policy tools which involve the provision of liquidity directly to borrowers and investors in key credit markets. for example, we have introduced facilities to purchase highly rated commercial paper at a term of three months and to provide backup liquidity for money market mutual funds. in addition, the federal reserve and the treasury have jointly announced a facility – expected to be operational shortly – that will lend against aaa - rated asset - backed securities collateralized by recently originated student loans, auto loans, credit card loans, and loans guaranteed by the small business administration. unlike our other lending programs, this facility combines federal reserve liquidity with capital provided by the treasury. if the program works as planned, it should help to restart activity in these key securitization markets and lead to lower