worse still, if there are supervisory gaps, the chance of any one authority identifying potential adverse impact from areas outside of one ’ s own mandate is even smaller. take the us as an example, the authorities and investors did not realize that credit rating agencies were not doing an adequate job in their rating of complex structured products. if there were a lead supervisor, would the whistle have been blown earlier? i believe that there would have been a better chance if there were a lead supervisor with a clear mandate to take the lead responsibility and who is risk focused. there would have been more dialogues through which weaknesses may have been identified and corrected. the idea of a lead supervisor has gained widespread support in the area of cross - border supervision, as it contributes to better coordination, which in turn could help to prevent or identify problems at an early stage. by the same token, such benefits could be gained in the domestic setting from having a lead supervisor under the separate authorities model. of course, in the case of the integrated model, the notion becomes a lead department in the same agency, rather than an outside lead supervisor. the next question is : who should be the lead supervisor? the obvious answer is it should be the one that supervises the core financial institutions of the country. and following my previous argument that a central bank should supervise the core financial sector, the central bank should be the lead supervisor. the financial landscape, role, and systemic importance of financial institutions evolve overtime, so must the scope of oversight and focus of lead supervisor. the lead supervisor must closely monitor this evolution and ensure no regulatory gap emerges. it can do so by expanding its scope of supervision either directly or indirectly through the relevant agencies and build coordination to ensure it can perform its lead role properly.

of credit to sound borrowers, even when secured by what had been seen as good collateral, has been a source of instability and constraint on credit flows. central banks can address such a shortage because they can remain unaffected by panicky flights to liquidity and safety. their willingness to extend collateralized lending in size against a broad range of assets can replace flows of private credit that are normally uncollateralized. another aspect of our efforts to affect financial conditions has been the extension of our open market operations to large - scale purchases of agency mortgage - backed securities ( mbs ), agency debt, and longer - term treasury debt. we initially announced our intention to undertake large - scale asset purchases last november, when the federal funds rate began to approach its zero lower bound and we needed to begin applying stimulus through other channels as the economic contraction deepened. these purchases are intended to reduce intermediate - and longer - term interest rates on mortgages and other credit to households and businesses ; those rates influence decisions about investments in long - lived assets like houses, consumer durable goods, and business capital. in ordinary circumstances, the typically quite modest volume of central bank purchases and sales of such assets has only small and temporary effects on their yields. however, the extremely large volume of purchases now underway does appear to have substantially lowered yields. the decline in yields reflects " preferred habitat " behavior, meaning that there is not perfect arbitrage between the yields on longer - term assets and current and expected short - term interest rates. these preferences are likely to be especially strong in current circumstances, so that longterm asset prices rise and yields fall as the federal reserve acquires a significant portion of the outstanding stock of securities held by the public. against this general background, let me address some questions about our operations. have they been effective? yes, i believe they have helped ease financial conditions, though they can't address all the problems in financial markets. and the situation in financial markets and the economy would have been far worse if the federal reserve hadn't taken the actions we did in supplying liquidity as well as lowering our federal funds rate target. clearly, sharp decreases in the federal funds rate target have shown up directly in other short - term interest rates. our commercial paper facilities helped stabilize money market mutual funds and have steadied the commercial paper market and lowered rates for highquality issuers. and the announcements of our purchases of mbs and treasury bonds have reduced mortgage and other long - term interest rates