were common. banks entered into very large, long duration commitments to fund deals that faced significant regulatory and other requirements before they could close. estimates vary, but when the crisis emerged and liquidity in these markets evaporated, large dealers were left holding roughly $ 350 billion in loans and commitments in their pipelines that they could not sell, and these positions remained on banks ’ balance sheets for a time. as loan values declined an unprecedented 40 percent ( figure 6 ), there were significant mark - to - market losses on these assets, which may have contributed to doubts about the condition of institutions at the core of the system. subsequent default rates were not outsized by historical standards, and recovery rates were in line with past averages ( figure 7 ). of course, the fed ’ s monetary policy eased financial conditions across the economy and enabled the refinancing of many of these loans at lower rates and with issuerfriendly terms. because leveraged loans were generally not held in investment structures that used shortterm, confidence - sensitive funding, these investments were not a principal focal point of runs such as those that plagued mbs funding structures. clos were the largest institutional investors in leveraged loans, holding over 50 percent of loans outstanding. these structures are funded with stable capital, with both equity and debt tranches committed for several years – a longer duration than that of the underlying loans. this picture of the pre - crisis leveraged lending market is one of a sharp decline in underwriting standards and a breakdown of risk management, resulting in a large risk buildup involving many of the g - sibs – something the fed and other regulators want to avoid. leveraged loans may not have been a material cause of the crisis, and leveraged lending alone would likely not have threatened the overall health of the large institutions. but caution on the part of supervisors is certainly understandable here. it is worth remembering that the destructive potential of the subprime mortgage market was not obvious in advance and not fully reflected in real - time measures of balance sheet exposure. in light of that demonstrated uncertainty, since the crisis, supervisors have opted to react earlier and more aggressively to the buildup of risk. let ’ s now turn to post - crisis market conditions, which exhibit both similarities and differences compared with the pre - crisis period. borrowing through leveraged loans by speculative - grade companies has been brisk since 2010, with about $ 800 billion of institutional loans now outstanding ( figure 8 ). over much of

counselors, community group representatives, and government officials attended. regulatory responses the federal reserve takes responsible lending and consumer protection very seriously. along with other federal and state agencies, we are responding to the subprime problems on a number of fronts. we are committed to preventing problems from recurring, while still preserving responsible subprime lending. last year, in coordination with other federal supervisory agencies, we issued principlesbased guidance describing safety - and - soundness and consumer - protection standards for nontraditional mortgages, such as interest - only and negative - amortization mortgages. we subsequently issued illustrations to help institutions clearly communicate information to consumers. in june of this year the agencies issued supervisory guidance on subprime arms. the guidance describes standards that banks should follow to ensure that borrowers obtain loans that they can afford to repay and that give them the opportunity to refinance without prepayment penalty for a reasonable period before the interest rate resets. we have requested public comment on illustrations to help lenders implement this guidance. the board also is committed to providing more - effective disclosures to help consumers defend against improper lending. as i discussed in my testimony to this committee in july, we recently issued proposed rules under regulation z, which implements the truth in lending act ( tila ), to improve disclosures related to credit cards and other revolving credit accounts. we are now engaged in a similarly rigorous review of tila rules for mortgage loans and will be conducting extensive consumer testing of mortgage disclosures for this purpose. in my view, better disclosure of the schedule of mortgage payments over the life of the loan can help borrowers understand the terms of their mortgages and judge their ability to make future payments. consumers may also benefit from better information about costs, including brokers'fees, when choosing among competing mortgage products. in addition, we " the home ownership preservation initiative in chicago ( hopi ) : reducing foreclosures through strategic partnerships, " presentation by bruce gottschall, executive director, neighborhood housing services of chicago, june 25, 2007, http : / / nw. org / network / neighborworksprogs / foreclosuresolutions / documents / hopi _ 000. ppt. are developing two sets of proposed changes to tila rules – one to address concerns about incomplete or misleading mortgage loan advertisements and solicitations and a second to require lenders to provide mortgage disclosures more quickly so that consumers can get the information they need