to small businesses. 4 see board of governors of the federal reserve system, federal deposit insurance corporation, office of the comptroller of the currency, and office of thrift supervision ( 2008 ), “ interagency statement on meeting the needs of creditworthy borrowers ”, joint press release, november 12 ; board of governors of the federal reserve system, federal deposit insurance corporation, national credit union administration, office of the comptroller of the currency, office of thrift supervision, and conference of state bank supervisors ( 2010 ), “ regulators issue statement on lending to creditworthy small businesses ”, joint press release, february 5 ; board of governors of the federal reserve system, division of banking supervision and regulation ( 2009 ), “ prudent commercial real estate loan workouts ”, supervision and regulation letter sr 09 - 7 ( october 30 ) ; and office of the comptroller of the currency, federal deposit insurance corporation, federal reserve board, federal financial institutions examination council and office of thrift supervision ( 2009 ), “ policy statement on prudent commercial real estate loan workouts ”, joint policy statement, october 30. see william j. dennis ( 2010 ), “ small business credit in a deep recession ”, national federation of small business research foundation ( washington : nfib, february ). see board of governors of the federal reserve system, “ senior loan officer opinion survey on bank lending practices ”. fiscal policy in addition to the near - term challenge of fostering improved economic performance and stronger labor markets, we as a nation face the difficult but essential task of achieving longer - term sustainability of the nation ’ s fiscal position. the federal budget deficit is on track this year to be nearly as wide as the $ 1. 4 trillion gap recorded in fiscal year 2009. to an important extent, these extremely large deficits are the result of the effects of the weak economy on revenues and outlays, along with the necessary actions that were taken to counter the recession and restore financial stability. but an important part of the deficit appears to be structural ; that is, it is expected to remain even after economic and financial conditions have returned to normal. in particular, the administration and the congressional budget office ( cbo ) project that the deficit will recede somewhat over the next two years as the temporary stimulus measures wind down and as economic recovery leads to higher revenues. thereafter, however, the annual deficit is expected to remain high through 2020, in the neighborhood of 4 to 5

prevailed for the past few years. financial market developments financial markets have improved considerably since i last testified before this committee in may of last year. conditions in short - term credit markets have continued to normalize ; spreads in bank funding markets and the commercial paper market have returned to near pre - crisis levels. in light of these improvements, the federal reserve has largely wound down the extraordinary liquidity programs that it created to support financial markets during the crisis. the only remaining program, apart from the discount window, is the term assetbacked securities loan facility for loans backed by new - issue commercial mortgage - backed securities, and that facility is scheduled to close at the end of june. overall, the federal reserve ’ s liquidity programs appear to have made a significant contribution to the stabilization of the financial system, and they did so at no cost to taxpayers and with no credit losses. the federal reserve also recently completed its purchases of $ 1. 25 trillion of federal agency mortgage - backed securities and about $ 175 billion of agency debt. purchases under these programs were phased down gradually, and to date, the transition in markets has been relatively smooth. the federal reserve ’ s asset - purchase program appears to have improved market functioning and reduced interest - rate spreads not only in the mortgage market but in other longer - term debt markets as well. on net, the financial condition of banking firms has strengthened markedly during recent quarters. last spring, the federal reserve and other banking regulators evaluated the nation ’ s largest bank holding companies under the supervisory capital assessment program, popularly known as the stress test, to ensure that they would have sufficient capital to remain viable and to lend to creditworthy borrowers even in a worse - than - expected economic scenario. 1 the release of the stress test results significantly increased market confidence in the banking system. greater investor confidence in turn allowed the banks to for more on the scap, see ben s. bernanke ( 2009 ), “ the supervisory capital assessment program ”, speech delivered at the federal reserve bank of atlanta 2009 financial markets conference, jekyll island, ga., may 11 ; board of governors of the federal reserve system ( 2009 ), “ federal reserve, occ, and fdic release results of the supervisory capital assessment program ”, press release, may 7 ; and daniel k. tarullo ( 2010 ), “ lessons from the crisis stress tests ”, speech delivered at the federal reserve board international research forum on monetary policy, washington, march 26. raise substantial