mr greenspan asks whether efficient financial markets mitigate financial crisis? remarks by mr alan greenspan, chairman of the board of governors of the us federal reserve system, before the 1999 financial markets conference of the federal reserve bank of atlanta, sea island, georgia on 19 october 1999. * * * i am happy to address this conference, now in its eighth year, and endorse atlanta fed president jack guynn ’ s choice of topic. many of us, with the benefit of hindsight, have been endeavoring for nearly two years to distil the critical lessons from the global crises of 1997 and 1998. your contributions to this analysis are timely and useful. knowing that you have touched on a number of topics over the last few days, i wanted to focus on some of the issues i raised at the most recent meetings of the imf and world bank ; in particular, why the financial turmoil engendered by disruption in asia resulted in a crisis longer and deeper than we expected in its early days. in a sense, i am turning the question posed by this conference – do efficient financial markets contribute to financial crises? – on its head by asking whether efficient financial markets mitigate financial crises. to answer the question, we need to look at the financial market situation of just over a year ago. following the russian default of august 1998, public capital markets in the united states virtually seized up. for a time, not even investment - grade bond issuers could find reasonable takers. while federal reserve easing shortly thereafter doubtless was a factor, it is not credible that this move fully explained the dramatic restoration of most, though not all, markets in a matter of weeks. the problems in our markets appeared too deep - seated to be readily unwound solely by a cumulative 75 basis point ease in overnight rates. arguably, at least as important was the existence of backup financial institutions, especially commercial banks, that replaced the intermediation function of the public capital markets. as public debt issuance fell, commercial bank lending accelerated, effectively filling in some of the funding gap. even though bankers also moved significantly to risk aversion, previously committed lines of credit, in conjunction with federal reserve ease, were an adequate backstop to business financing, and the impact on the real economy of the capital market turmoil was blunted. firms were able to sustain production, and business and consumer confidence was not threatened. a vicious circle of the initial disruption leading to losses and then further erosion in the financial

jerome h powell : financial stability and economic developments speech by mr jerome h powell, chair of the board of governors of the federal reserve system, at the bank of spain fourth conference on financial stability, madrid, spain, 29 june 2023. * * * today i will briefly discuss the current economic situation and the stresses that emerged in the u. s. banking system earlier this year. i will then turn to the evolution of the financial system since the great recession and conclude with a few general observations. i will highlight how global efforts to boost resilience in the financial sector over the past decade have been an important success. i will also discuss how recent developments have revealed residual vulnerabilities that we are going to address, and the need to be vigilant for emerging risks. u. s. economic growth slowed significantly last year, and recent indicators suggest that economic activity has continued to expand at a modest pace. growth in consumer spending has picked up this year, and some indicators in the housing market have turned up recently. at the same time, activity in the housing sector remains far below its peak in early 2022, reflecting the effects of higher mortgage rates. higher interest rates and slower output growth also appear to be weighing on business fixed investment. the labor market remains very tight. over the past three months, payroll job gains have been robust. the unemployment rate has moved up but remains low. there are some signs that supply and demand in the labor market are coming into better balance, including higher labor force participation, some easing in nominal wage growth, and declining vacancies. while the jobs - to - workers gap has declined, labor demand still substantially exceeds the supply of available workers. inflation, however, remains well above our longer - run goal of 2 percent. over the 12 months ending in may, total personal consumption expenditures ( pce ) prices are estimated to have risen 3. 9 percent ; excluding the volatile food and energy categories, core pce prices likely rose 4. 7 percent. inflation has moderated somewhat since the middle of last year. nonetheless, inflation pressures continue to run high, and the process of getting inflation back down to 2 percent has a long way to go. since early last year, we have raised our policy rate by 5 percentage points. we see the effects of our policy tightening on demand in the most interest ratea€ “ sensitive sectors of the economy, particularly housing and investment. it will take time, however, for the full effects of monetary