##uritizations with early amortization provisions. in issuing the anpr, an advance notice, the agencies are indicating that views are still being developed and additional comment would be beneficial before we move forward. we are intentionally leaving a number of areas open in order to solicit a broad range of comments. indeed, we are strongly encouraging bankers and others to provide their views, especially since the suggested changes could affect nearly all of the banks in the united states. importantly, the anpr does not propose changes to the existing u. s. prompt corrective action or leverage requirements ; nor does it suggest the addition of new risk - based charges for operational risk or for interest rate risk, which would continue to be covered implicitly. as supervisors, we continue to focus on ensuring that risk - management processes are appropriate and effective for the operations of each institution. the anpr reflects our attempt to mitigate some of the consequences arising from differences between basel i and basel ii, while acknowledging that simpler capital rules are still appropriate for nearly all u. s. banking organizations. to be quite clear, the federal reserve will not look upon institutions as having deficient risk - management systems simply because they choose to stay under the basel i capital framework. thus, we expect that nonbasel ii banks can continue to have camels 1 and 2 ratings as long as they operate in a safe and sound manner. the basel ii framework rationale for adopting basel ii in the united states in discussing basel ii, i would like to begin by briefly outlining our reasons for adopting the new framework. over the past several decades, we have witnessed substantial changes in the u. s. banking industry, particularly at our largest institutions. these very large entities have broad geographic reach, operate in many lines of business, and offer a wide array of complex products and services. the largest institutions have moved away from the traditional banking strategy of holding assets on the balance sheet to strategies that emphasize redistribution of assets and active management of risks. and the risk - management techniques employed by many banking organizations continue to change, improve and adapt to the ever - changing financial landscape. while the current basel i - based rules have served us well for nearly two decades, they are simply not appropriate for identifying and measuring the risks of our largest, most complex banking organizations. basel i, even when periodically amended, must be straightforward enough for even the smallest banking organizations to implement with relative ease. thus, the categories of risk used to determine capital are very

impart knowledge about the depth and extent of trading and the willingness of financial intermediaries to serve as market makers. by reviewing the sizes of issuance of various financial instruments as well as trade volumes in a number of markets, we try to assess the relative strength and resilience of markets. and we try to assess the reliability of prices by reviewing information on bid - ask spreads and quote sizes where available. of course, these various price and volume indicators are not easy to disentangle, necessitating that our judgments on the state of market functioning customarily be provisional. throughout the turbulence of the past few months, we have followed a number of indicators that pointed to strains in several markets. for example, we saw spreads on subprime we should also recognize that financial instability is symmetric and could arise equally when credit flows too freely or at prices that are too low. those were the words used by then - chairman alan greenspan in his comments on the 1998 financial crisis. alan greenspan ( 2000 ), " technology and financial services, " speech delivered before the journal of financial services research and the american enterprise institute conference, in honor of anna schwartz, washington, dc, april 14, www. federalreserve. gov / newsevents. htm. residential mortgage - backed securities soar and securitization volumes slow to a trickle as market participants became concerned about their ability to value those products amid mounting delinquency rates and defaults in the sector. investors'lack of confidence in valuations was also apparent in other securitized products, as evidenced by higher spreads and lower issuance in markets for collateralized debt obligations and collateralized loan obligations. the asset - backed and the lower - grade unsecured commercial paper markets also came under pressure ; difficulties spread to other money markets, and term spreads in interbank funding markets climbed much above historical levels. it is also true, however, that some financial indicators provided some reassurance during this period. important parts of the financial system continued to function well, especially in markets where less - complex financial products are traded and where investors are less reliant on the role of the rating agencies. for example, although equity markets were quite volatile at times, trading was generally not impaired, and investors were able to buy and sell stocks at market - prevailing prices, even at the times of greatest turbulence. the markets for longer - term treasury securities and investment - grade corporate bonds generally continued to function well