in retrospect, mortgage borrowing was clearly too easy for some households in the mid - 2000s, resulting in debt burdens that were unsustainable and ultimately damaging to the financial system. currently, many factors are likely affecting mortgage lending, including changes in market perceptions of the risk associated with mortgage lending ; changes in practices at the government - sponsored enterprises and the federal housing administration ; changes in technology that may be contributing to entry by nonbank lenders ; changes in consumer protection regulations ; and, perhaps to a limited degree, changes in capital and liquidity regulations within the banking sector. these issues are complex and interact with a broader set of challenges related to the domestic housing finance system. credit appears broadly available to small businesses with solid credit histories, although indicators point to some difficulties facing firms with weak credit scores and insufficient credit histories. 26small business formation is critical to economic dynamism and growth. smaller firms rely disproportionately on lending from smaller banks, and the federal reserve has been taking steps and examining additional steps to reduce unnecessary complexity in regulations affecting smaller banks. 27 finally, many financial market participants have expressed concerns about the ability to transact in volume at low cost — that is, about market liquidity, particularly in certain fixed - income markets such as that for corporate bonds. market liquidity for corporate bonds remains robust overall, and the healthy condition of the market is apparent in low bid - ask spreads and the large volume of corporate bond issuance in recent years. that said, liquidity conditions are clearly evolving. large dealers appear to devote less of their balance sheets to holding inventories of securities to facilitate trades and instead increasingly facilitate trades by directly matching buyers and sellers. in addition, algorithmic traders and institutional investors are a larger presence in various markets than previously, and the willingness of these institutions to support liquidity in stressful conditions is uncertain. while no single factor appears to be the predominant cause of the evolution of market liquidity, some regulations may be affecting market liquidity somewhat. there may be benefits to simplifying aspects of the volcker rule, which limits proprietary trading by banking firms, and to reviewing the interaction of the enhanced supplementary leverage ratio with risk - based capital requirements. at the same time, the new regulatory framework overall has made dealers more resilient to shocks, and, in the past, distress at dealers following adverse shocks has been an important factor driving market illiquidity. as a result, any adjustments to the regulatory

##stein and asher wolinsky described it eloquently : " what makes the middlemen's activity possible is the time - consuming nature of the trade, which enables middlemen to extract surplus in return for shortening the time period that sellers and buyers have to wait for a transaction. " 2 let me contextualize the value of middlemen with an example i used for years when teaching money and banking. suppose you had some extra income from saving and wanted to lend it out to earn interest. how would you do that? first, you would have to 1 / 5 bis - central bankers'speeches advertise that you had funds to lend. then, you would have to wait for the right person who needed that exact amount of funds, which could be a long time. once you met the right person, you would have to negotiate when repayment would occur. next, you would need to know a lot of information about the person receiving your funds and the likelihood you would get repaid. this is needed to assess the risk of the transaction and the compensation you would need to give up your funds. you would also need a lot of legal advice to draw up a contract and stipulate how the contract would be enforced under a range of conditions. finally, since you are the sole source of funding, you will bear the entire cost of a default. it should be clear that this would be a daunting exercise for most people and explains why they would turn to a middleman who specializes in this type of activity to do all this on their behalf. it is for these reasons that banks arose as early as in ancient mesopotamia to carry out some of these functions. 3 similar issues arise when it comes to other ways of transferring resources from one person to another, as occurs from non - bank debt, equities and insurance contracts. many point to trades of shares in the dutch east india trading company in amsterdam in the 1660s as the origins of the first modern stock exchange. lloyds of london was founded as a means of pooling funds to share risk and return in the shipping industry, thus becoming the first insurance firm. the fact that similar arrangements still exist centuries later is a testament to the value of intermediation and centralized financial trading. however, these arrangements are not without drawbacks. an obvious drawback of intermediation from the perspective of those wishing to trade is that those middlemen must get paid. that is, there are transaction costs. another