market liquidity and market functioning. these actions include reducing the cost and increasing the allowable term of discount window credit to commercial banks ; increasing the size of our term auction facility, through which credit is auctioned to depository institutions ; initiating a term securities lending facility, which allows primary dealers to swap less - liquid mortgage backed securities for more - liquid treasury securities ; and creating the primary dealer credit facility, which is similar to the discount window but accessible to primary dealers. although these facilities operate through depository institutions and primary dealers, they are designed to support the broader financial markets and the economy by facilitating the provision of liquidity by those institutions to their customers and counterparties. with respect to monetary policy, at its march meeting the fomc reduced its target for the federal funds rate by 75 basis points to 2 - 1 / 4 percent. it was in this context of intensifying financial strains that, on march 13, bear stearns advised the federal reserve and other government agencies that its liquidity position had significantly deteriorated and that it would have to file for bankruptcy the next day unless alternative sources of funds became available. this news raised difficult questions of public policy. normally, the market sorts out which companies survive and which fail, and that is as it should be. however, the issues raised here extended well beyond the fate of one company. our financial system is extremely complex and interconnected, and bear stearns participated extensively in a range of critical markets. the sudden failure of bear stearns likely would have led to a chaotic unwinding of positions in those markets and could have severely shaken confidence. the company's failure could also have cast doubt on the financial positions of some of bear stearns'thousands of counterparties and perhaps of companies with similar businesses. given the exceptional pressures on the global economy and financial system, the damage caused by a default by bear stearns could have been severe and extremely difficult to contain. moreover, the adverse impact of a default would not have been confined to the financial system but would have been felt broadly in the real economy through its effects on asset values and credit availability. to prevent a disorderly failure of bear stearns and the unpredictable but likely severe consequences for market functioning and the broader economy, the federal reserve, in close consultation with the treasury department, agreed to provide funding to bear stearns through jpmorgan chase. over the following weekend, jpmorgan chase agreed to purchase bear stearns and assumed bear's financial obligations. the purpose

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