fx ) intervention capacity ; trading banks demand for liquid assets, primarily to facilitate daily interbank payments ; treasury ’ s management of the crown settlement ( cash ) account with the rbnz ; and the public ’ s demand for notes and coins. financial risks arise from : • the rbnz ’ s open fx position and associated foreign exchange risk, which is mitigated by limits on the position and holdings of a diversified basket of reserve currencies ; • interest rate risk arising from domestic market operations and from foreign reserves management, mitigated through duration and risk limits ; • credit risk arising from foreign currency assets, which is mitigated by investing in high grade debt instruments ; and • credit risk arising from derivative transactions, which is mitigated by holding high quality collateral. investment policies control market and credit risk exposure through hedging policies, liquidity and investment ratings requirements, and counterparty credit limits. perhaps the most significant of these is the restriction on unhedged foreign reserves. by agreement with the minister of finance, the open fx position is limited to a specified range, a subset of the total foreign reserves limit, with the remaining foreign reserve assets hedged from an fx perspective. new zealand differs from many countries in this respect. the majority of foreign currency assets are funded through long - term foreign exchange swaps, and therefore hedged from foreign exchange risks or through long - term foreign currency borrowings ( which have been originated by the treasury and on - lent to rbnz ). reserves and portfolio management is expanded upon below. credit risk is mitigated by investing foreign assets in high - quality sovereigns, nearsovereigns, and international agencies. in terms of domestic lending, credit risk is mitigated by lending on a collateralised basis with banks providing rbnz high - quality collateral, and the bank applying discounts, with daily monitoring of collateral values and collateral calls to ensure the value of collateral is appropriate for the amount lent. the bank has several sources of interest rate risk that are mostly controlled through risk caps and duration limits. on hedged foreign reserves, some interest rate risk arises through mis - match of duration of assets and liabilities. reported earnings are subject to volatility from mark - to - market value of long - term liabilities. another source of interest rate risk is due to changes in new zealand ’ s short - term interest rates. essentially, through fx swaps, rbnz is investing at short - term interest rates, and

treasury notes and bonds – eschewing treasury bills. presently, the fed holds more than $ 850 billion in mortgage - backed securities ( mbs ) and over $ 1. 6 trillion in treasuries. this expansion of our portfolio and extension of maturities held therein is known as “ quantitative easing ”, or qe. after cutting the base rate for overnight lending – the fed funds rate – to zero, the majority of the committee decided to expand the money supply by purchasing mbs, notes and bonds. when we buy something in the marketplace, we pay for it, and this has resulted in significant liquidity floating about the u. s. economy, much of it going unused. as mentioned earlier, $ 1. 5 trillion of excess reserves from private banks is on deposit in the 12 federal reserve banks, where it earns a paltry 0. 25 percent, rather than being lent to job - creating businesses at rates bankers would prefer. additionally, some $ 2 trillion of excess cash is parked on corporate balance sheets – above and beyond the operating cash flow needs of the business sector – and copious amounts of cash are lying fallow in the pockets of nondepository financial institutions, such as private equity and other investment funds. a running discussion in the marketplace centers around whether the fomc will decide to engage in further quantitative easing, especially given the most recent economic weakness in the u. s., against the backdrop of the well - known problems in europe and slower growth in china and other “ emerging ” economies. i shall turn to that in a few moments. first, i want to go back to the 12 federal reserve banks. different growth patterns in the 12 federal reserve districts here is a map of the 12 federal reserve bank districts. the federal reserve bank of dallas is responsible for the fed ’ s activity in the light green area – the eleventh district – home to 27 million people in texas, northern louisiana and southern new mexico. roughly 96 percent of the district ’ s output comes from texas. bis central bankers ’ speeches here is a chart showing the disparate behavior of the economies in the 12 federal reserve districts, as measured by employment growth. you will see that going back to 1990 – some 22 years – the eleventh federal reserve district has outperformed the other federal reserve districts in job creation. in terms of employment, the dallas fed ’ s district went into the recession last and was one of the first to come out. we have since