of credit to sound borrowers, even when secured by what had been seen as good collateral, has been a source of instability and constraint on credit flows. central banks can address such a shortage because they can remain unaffected by panicky flights to liquidity and safety. their willingness to extend collateralized lending in size against a broad range of assets can replace flows of private credit that are normally uncollateralized. another aspect of our efforts to affect financial conditions has been the extension of our open market operations to large - scale purchases of agency mortgage - backed securities ( mbs ), agency debt, and longer - term treasury debt. we initially announced our intention to undertake large - scale asset purchases last november, when the federal funds rate began to approach its zero lower bound and we needed to begin applying stimulus through other channels as the economic contraction deepened. these purchases are intended to reduce intermediate - and longer - term interest rates on mortgages and other credit to households and businesses ; those rates influence decisions about investments in long - lived assets like houses, consumer durable goods, and business capital. in ordinary circumstances, the typically quite modest volume of central bank purchases and sales of such assets has only small and temporary effects on their yields. however, the extremely large volume of purchases now underway does appear to have substantially lowered yields. the decline in yields reflects " preferred habitat " behavior, meaning that there is not perfect arbitrage between the yields on longer - term assets and current and expected short - term interest rates. these preferences are likely to be especially strong in current circumstances, so that longterm asset prices rise and yields fall as the federal reserve acquires a significant portion of the outstanding stock of securities held by the public. against this general background, let me address some questions about our operations. have they been effective? yes, i believe they have helped ease financial conditions, though they can't address all the problems in financial markets. and the situation in financial markets and the economy would have been far worse if the federal reserve hadn't taken the actions we did in supplying liquidity as well as lowering our federal funds rate target. clearly, sharp decreases in the federal funds rate target have shown up directly in other short - term interest rates. our commercial paper facilities helped stabilize money market mutual funds and have steadied the commercial paper market and lowered rates for highquality issuers. and the announcements of our purchases of mbs and treasury bonds have reduced mortgage and other long - term interest rates

##mediaries, and we choose them based on judgments that improved functioning will reduce systemic instability or have a material effect on credit flows and the economy and that our actions have high odds of yielding improvements. are we taking credit risks that will end up being paid for by the taxpayer? for the credit facilities that we make available to multiple firms, we are not taking significant credit risk that might end up being absorbed by the taxpayer. for almost all the loans made by the federal reserve, we look first to sound borrowers for repayment and then to underlying collateral. moreover, we lend less than the value of the collateral, with the size of the " haircuts " depending on the riskiness of the collateral and on the availability of market prices for the collateral. some of our lending programs involve nonrecourse loans that look primarily to the collateral rather than to the borrower for repayment in the event that the value of the collateral falls below the amount loaned. in these circumstances, we insist on taking only the very highest quality collateral, lend less than the face amount of the collateral, and typically have other sources to absorb any losses that might nonetheless occur – for example, treasury capital for our lending against securitized loans. 4 we have increased the amount of information that we publish about the collateral and other steps we take to protect against credit losses. but, understandably, given the sharp increase in loans to new institutions and markets, the public is naturally interested in our lending practices, and we will be releasing even more information about what stands behind our loans in coming weeks. how will we gauge how much to do? this is a difficult question without a ready answer, even under more normal circumstances when we are focused on the federal funds rate, and it is an even harder judgment when, as now, the federal funds rate is near zero and we are intervening in other ways to affect financial conditions. we have some, albeit limited, ability to gauge the effects of large - scale asset purchases on interest rates ; the effects of liquidity facilities, like the term assetbacked securities loan facility and other programs, are even more difficult to assess and predict. and with markets disrupted and confidence depressed, the relationship between a particular constellation of interest rates and asset prices and future spending and inflation is more uncertain than usual. we will continue to analyze these relationships in light our experience and adjust our forecast of the evolution of the economy under various policy alternatives, but we need to recognize that those forecasts could change