systemically important banking organizations from a macroprudential perspective. for example, based on public data, we develop and monitor measures of systemic importance that reflect firms ’ interconnectedness and their provision of critical services. unfortunately, data on the shadow banking sector, by its nature, can be more difficult to obtain. thus, we have to be more creative to monitor risk in this important area. we look at broad indicators of risk to the financial system, such as measures of risk premiums, asset valuations, and market functioning. we try to gauge the risk of runs by looking at indicators of leverage ( both on and off balance sheet ) and tracking short - term wholesale funding markets, especially for evidence of maturity mismatches between assets and liabilities. we are also developing new sources of information to improve the monitoring of leverage. for example, in 2010, we began a quarterly survey on dealer financing ( the senior credit officer opinion survey on dealer financing terms ) that collects information on the leverage that dealers provide to financial market participants in the repo and over - the - counter derivatives markets. 3 in addition, we are working with other agencies to create a comprehensive set of regulatory data on hedge funds and private equity firms. broader economic developments can also create risks to financial stability. to assess such risks, we regularly monitor a number of metrics, including, for example, the leverage of the nonfinancial sector. in addition, we use data from the flow of funds accounts to assess how much nonfinancial credit is ultimately being funded with short - term debt. 4 this assessment is important because an overleveraged nonfinancial sector could serve to amplify shocks, to the detriment of the functioning of the financial sector and broader economy. our judgment of how the financial sector is affecting economic activity reflects both information on lenders – most notably, underwriting standards, risk appetite, and balance sheet capacity – and analytical indicators of macroeconomic vulnerability to financial risks. meanwhile, efforts are under way, both at the federal reserve and elsewhere, to evaluate and develop new macroprudential tools and to develop early warning indicators that could help identify and limit future buildups of systemic risk. in the decades prior to the financial crisis, financial stability policy tended to be overshadowed by monetary policy, which had come to be viewed as the principal function of central banks. in the aftermath of the crisis, however, financial stability policy has taken on greater prominence and is now generally considered

the risks that would be posed to the repo market by the default of a major firm. international regulatory groups have also been focused on addressing the financial stability risks of shadow banking. the group of twenty leaders have directed the financial stability board ( fsb ), whose membership consists of key regulators from around the world, including the federal reserve, with developing policy recommendations to strengthen the regulation of the shadow banking system. the fsb currently has five major projects under way devoted to understanding the risks of, and developing policy recommendations for, shadow banking. the areas under study include money market funds, securitization, securities lending and the repo market, banks ’ interactions with shadow banks, and “ other ” shadow banking entities. given the substantial variation in the structure of shadow banking in different countries, the fsb ’ s agenda is ambitious. but it is also critical in light of the potential risks to stability from shadow banking and the ease with which shadow banking entities can create intermediation chains across national borders. monitoring financial stability i ’ ve outlined a number of ongoing efforts, both domestic and international, to bring the shadow banking system into the sunlight, so to speak, and to impose tougher standards on systemically important financial firms. but even as we make progress on known vulnerabilities, we must be mindful that our financial system is constantly evolving, and that unanticipated risks to stability will develop over time. indeed, an inevitable side effect of new regulations is that the system will adapt in ways that push risk - taking from more - regulated to less - regulated areas, increasing the need for careful monitoring and supervision of the system as a whole. at the federal reserve, we have stepped up our monitoring efforts substantially in recent years, with much of the work taking place under the auspices of our recently created office of financial stability policy and research. we conduct an active program of research and data collection, often in conjunction with other u. s. and foreign regulators and supervisors, including our fellow members on the fsoc. in addition, by making use of resources throughout the federal reserve system, we are developing a framework and infrastructure bis central bankers ’ speeches for monitoring systemic risk. our goal is to have the capacity to follow developments in all segments of the financial system, including parts of the financial sector for which data are scarce or that have developed more recently and are thus less well understood. this work complements and is closely coordinated with our efforts, mentioned earlier, to supervise