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of banks - - indeed of the financial system - - to weather recent stresses. more generally, the development of these instruments and techniques have led to greater credit availability, to a more efficient allocation of risk and resources, and to stronger financial markets. the flexibility and size of the secondary mortgage market has been especially important in the united states. since early 2000, this market has facilitated the large debt - financed extraction of home equity i just noted. that, in turn, has been critical in supporting consumer outlays in this country through the recession. this market ’ s flexibility has been particularly enhanced by extensive use of interest rate swaps and options to hedge maturity mismatches and prepayment risk. financial derivatives, more generally, have grown at a phenomenal pace over the past fifteen years. conceptual advances in pricing options and other complex financial products, along with improvements in computer and telecommunications technologies, have significantly lowered the costs of, and expanded the opportunities for, hedging risks that were not readily deflected in earlier decades. moreover, the counterparty credit risk associated with the use of derivative instruments has been mitigated by legally enforceable netting and through the growing use of collateral agreements. these increasingly complex financial instruments have been especial contributors, particularly over the past couple of stressful years, to the development of a far more flexible, efficient, and resilient financial system than existed just a quarter - century ago. banks appear to have effectively used such instruments to shift a significant part of the risk from their corporate loan portfolios to insurance firms here and abroad, to foreign banks, to pension funds, to hedge and vulture funds, and to other organizations with diffuse long - term liabilities or no liabilities at all. most of these transfers were made early in the credit - granting process, and significant exposures to telecommunication firms were laid off through credit default swaps, collateralized debt obligations, and other financial instruments. other risk transfers reflected later sales at discount prices as credits became riskier and banks rebalanced their portfolios. some of these sales were at substantial concessions to entice buyers to accept substantial risk. whether done as part of the original credit decision or in response to changing conditions, these transactions represent a new paradigm of active credit management and are a major part of the explanation of the banking system ’ s strength during a period of stress. of course, sound risk - management techniques require more than adequate tools and diverse markets. managers must also pay attention to