kevin m warsh : remarks on covered bond framework speech by mr kevin m warsh, member of the board of governors of the us federal reserve system, at the us department of the treasury press conference on covered bond framework, washington dc, 28 july 2008. * * * on behalf of the federal reserve, i am pleased to join secretary paulson and my fellow bank supervisors today. financial markets continue to show the ill effects of turmoil triggered by mortgage losses. the real economy is underperforming in terms of growth and job creation, a result in part of financial strains. and financial institutions themselves are affected by the generalized pullback in liquidity and deteriorating credit quality. nearly one year after the onset of financial market distress, many financial institutions have retreated from certain business lines, limited their participation in markets for some financial products, delevered their balance sheets, and taken other actions aimed at balance sheet repair. these developments are both necessary and expected. but, the path to a new financial market architecture, however uneven and improvised, will not only be marked by the forces of retrenchment. the path should equally, in my view, be distinguished by the creative impulses that drive product and market innovation. it is perhaps too convenient to denigrate the attributes of dynamism and ingenuity, particularly late in economic cycles, when the forces of innovation can disappoint and weaken the real economy. policymakers and market participants alike should recognize that innovation - - in our product markets, labor markets, and yes, our financial markets - - is likely to prove a necessary net contributor to economic growth in the coming period. we should also be reminded that financial innovation need not be equated with product complexity. while some take comfort in the presumption that global economies have decoupled, i would note that our global financial markets are more integrated than ever. financial products successfully developed in a single geography often can be readily exported to another ; readily, that is, if the new product export befits investor preferences and policymakers remove barriers to their adoption. today's introduction of the treasury covered bond framework may be illustrative of the benefits of product innovation in globally connected financial markets. treasury's discussions with market participants suggest that a covered bond framework may attract investor interest and facilitate greater access to mortgage credit. high - quality assets might be financed if banks are allowed to manage pools of loans, substituting new loans into the pool as others become delin

of “ relevant factors ” ( including cyclical developments to some public investments or state aid measures for the financial sector ), that can be invoked in the assessment of compliance with the deficit and debt criteria. this could create further room for unwarranted discretionary decisions and may open the door to lax fiscal policies at a time of much needed fiscal consolidation. as regards macroeconomic surveillance, we have often emphasised that, in order to be effective, it should have a clear focus on a restricted number of indicators capturing macroeconomic imbalances per se. this procedure is specifically targeted at macroeconomic imbalances, meaning extreme and persistent divergences from a sustainable trend that threaten the proper functioning of monetary union. it is not about achieving higher growth potential which is of course highly desirable and is the goal of the eu 2020 strategy. this does not imply that i do not recognise the need to co - ordinate all the dimensions of economic policy under the umbrella of the european semester. overall, the reports approved by your committee are a positive contribution for the trialogue that follows and that, i hope, can be successfully finalised so that the economic governance package can be adopted and implemented as soon as possible. conclusion madam chair, honourable members, the lessons of the financial crisis for europe are responsible for the vast programme of reforms that we have been implementing. last year, focused in the euro area, the crisis highlighted the interplay between the sovereign debt problems and the financial sector, since they represent two faces of the same crisis. weak financial sector can have an adverse impact on public finances, while deficient fiscal policies and macro imbalances can have negative repercussions on the financial sector. resolving both problems will put the euro area on a track of renewed sustainable growth, leaving this crisis behind us. this requires the implementation of effective economic governance that can ensure fiscal sustainability, bis central bankers ’ speeches competitiveness and growth, the completion of the permanent european stability mechanism and the efficient functioning of the new european system of financial supervision. in all these endeavours, the european parliament and the ecb share common values and goals and will, i am sure, continue to collaborate in order to ensure the success of europe. thank you for your attention. bis central bankers ’ speeches