declined, their borrowing capacity has been reduced. finally, small business lending often is based on relationships that are solidified over time. sometimes those relationships are broken as a result of the bank ’ s inability to lend, such as when the bank fails or when it reduces lending because of strains on or concentrations in its own portfolio. small businesses may then find it quite difficult to establish similar arrangements with a new bank. given the challenges facing small businesses, the federal reserve has sought to ease the flow of credit and better understand the nuances of the credit tightening. ultimately, the most effective way for policymakers to improve credit availability to small businesses, as well as other businesses and households, is to undertake efforts that support a sustainable economic recovery. with this in mind, the federal reserve over the past two years has taken strong action in response to the financial crisis to help improve financial market conditions and promote the flow of credit to households and businesses. we have acted on multiple fronts by instituting accommodative monetary policy, expanding existing liquidity programs for depository institutions, and establishing new liquidity facilities to support market functioning. throughout this period, we have particularly emphasized ensuring that our supervision and examination policies do not inadvertently impede sound lending to businesses, both large and small, and we will continue to do so. in addition, the federal reserve system is hosting meetings with private - and public - sector partners to highlight concerns facing small businesses. some of these meetings focus on general small business topics. others concentrate on subsegments of the market such as minority business owners or businesses located in low - and moderate - income areas. we are in the midst of hosting more than 40 such gatherings across the country to collect data and glean perspectives that will help find ways to meet the immediate and intermediate financial needs of small businesses. these meetings seek to identify existing credit gaps, share promising practices, and highlight regional differences as well as national themes in credit access and technical support for small businesses. the key findings of these small business gatherings will be presented to policymakers later this summer. despite the difficulties in the small business lending market, i find reason to be optimistic about small business lending in the near future. improvements in conditions that depressed lending in 2009 lead me to believe that we will begin to see an increase in bank loans to small businesses later this year. notably, overall economic conditions, the most important determinant of the demand for and availability of small business lending, have improved considerably since the early and

why long - term interest rates are so extraordinarily low in advanced economies around the world. the yield on our own benchmark 10 - year u. s. treasury security has increased lately, but at 2. 3 percent it is still far below what was normal before the financial crisis. in fact, this next chart shows that, as growth and inflation have fallen, longer term interest rates have fallen as well over the past 35 years ( figure 13 ). so why are long - term interest rates so low? many of you will no doubt be thinking, “ they are low because you people at the fed set them low! ” while there is an element of truth there, that is not the whole story. the fomc has considerable control over short - term interest rates. we have much less influence over long - term rates, which are set in the marketplace. long - term interest rates represent the price that balances the supply of saving by lenders and demand for funds by borrowers, such as businesses needing to fund their capital expenditures. lenders expect to receive a real return and to be compensated for inflation and for the risk of nonpayment. meanwhile, borrowers adjust their demand for funds based on their changing assessment of the risks and expected returns of their investment projects. when desired saving rises or investment - 9demand falls, then long - term interest rates will decline. today ’ s very low level of longterm rates suggests that both of these factors are at play. both expectations of slower growth and the aging of our population are having significant effects on desired saving and investment and are thus important causes of lower interest rates. if the economy is expanding more slowly, then the level of investment needed to meet demand will be lower. the lower path of growth reduces future income prospects of households, and they will tend to raise their saving. the pending retirement of baby boomers means higher saving, because people tend to save the most in the years just before their retirement. in addition, the lower rate of return on capital owing to lower productivity growth will lead to less investment and lower interest rates. as with productivity, the factors behind the fall in u. s. interest rates include an important global component, as rates are low around the world. indeed, although our rates are near historical lows, u. s. treasury rates are among the highest among the major advanced economy sovereigns ( figure 14 ). is this the new normal? what can we do