expansions, losses, and eventually loan defaults. in many cases, of course, these loans regrettably end up being guaranteed by governments. if denominated in local currency, they can be financed with the printing press - - though with consequent risk of inflation. too often, however, they are foreign - currency denominated, where governments face greater constraints on access to credit. restructuring of financial systems, while indispensable, cannot be implemented quickly. yes, the potential risks to the banking systems of many asian countries and the potential contagion effects for their neighbors, and other trading partners, should have been spotted earlier and addressed. but flaws, seen clearly in retrospect, are never so evident at the time. moreover, there is significant bias in political systems of all varieties to substitute hope ( read, wishful thinking ) for possibly difficult pre - emptive policy moves, both with respect to financial systems and economic policy. there is often denial and delay in instituting proper adjustments. recent propensities to obscure the need for change have been evidenced by unreported declines in reserves, issuance by the government of equivalents to foreign currency obligations, or unreported large new forward short positions against foreign currencies. it is very difficult for political leaders to incur what they perceive as large, immediate political costs to contain problems they see as only prospective. reality eventually replaces hope, and the cost of the delay is a more abrupt and disruptive adjustment than would have been required if action had been more pre - emptive. increased transparency for businesses and governments is a key ingredient in fostering more discipline on private transactors and on government policymakers. increased transparency can counter political bias in part by exposing for all to see the risks of current policies to stability as they develop. under such conditions, failure to act would also be perceived as having political costs. we should strongly stress to the newer members of the international financial system - - the emerging economies - - that they should accelerate the restructuring of their financial systems in their own interests. but having delayed timely restructuring, many now find themselves with major shortfalls in bank liquidity and equity capital that put their systems at severe risk of collapse before any full restructuring is feasible. the imf, the world bank, and their major shareholders, the developed countries, may wish to facilitate adjustment through temporary loans to governments and the encouragement of private equity infusions to these banking systems. since

available to communities from public subsidies and tax credit programs that are targeted to lower - income people. in just the past two years, banks have reported making over $ 120 billion in community development loans nationwide. 2 this figure does not capture the full extent of such lending, because smaller institutions are not required to report community development loans to their regulators. evidence on cra and the subprime crisis over the years, the federal reserve has prepared two reports for the congress that provide information on the performance of lending to lower - income borrowers or neighborhoods – populations that are the focus of the cra. 3 these studies found that lending to lower - income individuals and communities has been nearly as profitable and performed similarly to other types of lending done by cra - covered institutions. thus, the long - term evidence shows that the cra has not pushed banks into extending loans that perform out of line with their traditional businesses. rather, the law has encouraged banks to be aware of lending opportunities in all segments of their local communities as well as to learn how to undertake such lending in a safe and sound manner. recently, federal reserve staff has undertaken more specific analysis focusing on the potential relationship between the cra and the current subprime crisis. this analysis was performed for the purpose of assessing claims that the cra was a principal cause of the current mortgage market difficulties. for this analysis, the staff examined lending activity covering the period that corresponds to the height of the subprime boom. 4 the research focused on two basic questions. first, we asked what share of originations for subprime loans is related to the cra. the potential role of the cra in the subprime crisis could either be large or small, depending on the answer to this question. we found that the loans that are the focus of the cra represent a very small portion of the subprime lending market, casting considerable doubt on the potential contribution that the law could have made to the subprime mortgage crisis. second, we asked how cra - related subprime loans performed relative to other loans. once again, the potential role of the cra could be large or small, depending on the answer to this question. we found that delinquency rates were high in all neighborhood income groups, and that cra - related subprime loans performed in a comparable manner to other subprime loans ; as such, differences in performance between cra - related subprime lending and other subpr